Both invoice factoring and a business line of credit exist to bridge the gap between doing the work and getting paid for it — but they qualify borrowers differently, and that difference matters more than the sticker cost of either one.
Invoice factoring: sells the receivable, not the risk of your balance sheet
With factoring, you sell an unpaid invoice to a factoring company at a discount and get most of the cash immediately — typically 80-90% up front, with the remainder (minus a fee) released once your customer pays. Underwriting focuses heavily on your customer's creditworthiness, not just yours, which is why factoring is often accessible to newer or thinner-balance-sheet businesses that wouldn't yet qualify for a bank line. Which one actually costs less for a given invoice depends on the specific rates and how long the invoice sits outstanding -- run your own numbers on our factoring vs. line of credit calculator rather than assuming either is always cheaper. Some factoring arrangements also involve the factor collecting directly from your customer, which not every business wants its customers to see.
A business line of credit: revolving capacity against your own credit profile
A line of credit is underwritten against your business's own financials, time in business, and often a personal guaranty — not a specific invoice. Once approved, you draw what you need, pay interest only on the drawn balance, and repay to free up capacity again. It keeps your customer relationships out of the financing conversation entirely, but it generally requires a stronger financial profile and more time in business to qualify than factoring does.
Which one fits
- B2B business with slow-paying commercial customers, thinner financials, or rapid growth outpacing your own credit history → factoring lets you access cash tied up in receivables without waiting on your own balance sheet to catch up.
- Established business with decent cash flow and a credit profile a bank will underwrite → a line of credit is usually simpler to run day to day and doesn't depend on a single invoice, even when the two options cost about the same.
- Seasonal or lumpy revenue with receivables concentrated in a few large customers → factoring's per-invoice structure can flex with volume in a way a fixed credit line doesn't.
Our factoring vs. line of credit calculator runs the actual cost comparison for a specific invoice; our DSCR calculator is the better tool if you want to check whether your cash flow supports a line of credit's ongoing debt service more broadly, since factoring is underwritten against the receivable itself rather than a debt-service ratio.
Every situation is different, and the cheaper option on paper isn't always the one that actually gets approved fastest. Get your full pre-qualification estimate and a BizyFi advisor will tell you which structure your specific numbers actually support.