The terms “accounts receivable financing”, “invoice financing” and “invoice factoring” are often used interchangeably — and we do so in this work. But the terms can refer to different financing products depending on how they’re used, as accounts receivable financing can be structured as an asset sale (called factoring) or as an invoice-backed loan, line of credit or advance. Here’s how the two structures differ.
Factors purchase invoices while a lender servicing an accounts receivable loan, line of credit or advance accept invoices as collateral.
In an invoice-backed loan, advance or line of credit agreement, you own the invoice and the customer relationship. That means all collection processes stay with you. In contrast, invoice factors take this responsibility over, as they, not you, own the invoice.
To be clear, the funding product described in this work is, by definition, invoice factoring (asset sales).
Accounts receivable financing structured as an advance, loan or line of credit is described in more detail here: Invoice Financing Guide.