Top Alternatives to Invoice Factoring

While invoice factoring may be common in certain industries, it is not a one-size-fits-all financing solution. It does not address large capital needs, and it requires an ongoing invoice assignment. It is also active financing, so even if the business doesn’t utilize the capital, it still must pay a fee. The top alternatives to invoice factoring include invoice financing, term loans, lines of credit, and business credit cards.

Best Invoice Factoring Alternatives

Invoice Financing

Invoice financing is similar to invoice factoring because the loan amounts are based on the value of outstanding receivables. The major difference between them is that with invoice financing, small business owners don’t need to assign the invoices, so the customer relationship remains within the business’s control.

Short-term Loans

Short-term loans are the most familiar form of financing. They offer small business owners a lump sum of capital with a long repayment period and regular weekly or monthly payments. It’s a great substitute for invoice factoring if late invoice payments are preventing your business from undertaking a major project like renovations.

Small Business Lines of Credit

Like invoice factoring, a small business line of credit offers funding for ongoing expenses. Small business owners use both to finance operations and pay for regular expenses like payroll. However, a small business line of credit offers more flexibility because it can be used whenever needed instead of all the time. This potentially makes it less expensive for business owners that only need financing once in a while.

Business Credit Cards

A business credit card is a powerful tool for every business. Whether you are manufacturing or running a retail operation, you have ongoing expenses like gas and supplies. Business credit cards offer you a way to finance these expenses without worrying about checks clearing in your business checking account. Some of these business credit cards even offer rewards, which can add up to significant benefits over the course of a year.

Bottom Line

Selecting an alternative to invoice factoring depends on the type of issue you are trying to address. Every financing solution is equipped to address a specific financial issue. Choosing the right one is the surest way to minimize costs and maximize the utility you get from financing.