Many business owners compare invoice factoring to a line of credit because both provide access to working capital that increases as sales grow. However, while they may serve similar purposes, factoring is not a line of credit. The structure, qualification criteria, accounting treatment, and risk assumptions are fundamentally different.Invoice factoring provides funding by selling your company’s accounts receivable to a factoring company at a discount, allowing your business to convert unpaid invoices into immediate operating capital instead of waiting 30, 60, or 90+ days to get paid.
In non-recourse factoring, the factoring company also assumes the credit risk of your customers (for example, if a customer files bankruptcy). This shifts the risk of non-payment from your business to the factor.
Although factoring is not a loan, it can operate similarly to a revolving credit line because funding availability increases as your sales and receivables grow. The more invoices you generate from creditworthy customers, the more capital becomes available.
Unlike a traditional line of credit with a fixed limit, factoring facilities scale naturally with sales volume and customer credit quality. This scalability makes factoring especially useful for fast-growing businesses.
Both factoring and bank credit lines provide working capital, but they differ significantly in how they are structured, approved, recorded, and managed.
Factoring companies base their approval primarily on the creditworthiness of your customers (the account debtors)—not on your company’s credit score, financial statements, or profitability. If your customers are stable, established companies with a history of paying their bills, you can often qualify, even if your company is new or still building financial strength.
Banks, on the other hand, evaluate your company itself. Their approval process focuses primarily on the financial strength of your business, requiring:
Because banks prioritize historical performance over future potential, companies that are growing quickly, experiencing seasonal fluctuations, or reinvesting revenue back into operations often struggle to qualify—even if the business itself is healthy and expanding.
With factoring, your company sells invoices and receives cash. The transaction is treated as a sale of an asset, not a loan. No debt is created, and your company’s leverage ratios remain unchanged.
With a line of credit, your business borrows funds against your receivables and must record this as a liability on your balance sheet. This affects your debt-to-equity ratio, working capital ratios and future lending capacity.
If your business plans to pursue investors, equipment financing, or future bank loans, the ability to improve cash flow without increasing debt can be a significant advantage.
Banks usually require personal guarantees from owners or shareholders. This places your personal credit and personal assets at risk if the business faces cash flow difficulties.
Non-recourse factoring facilities generally do not require personal guarantees, because the risk is evaluated based on the credit profile of your customers and protected by credit insurance.
Banks conduct lengthy underwriting because they must evaluate the long-term financial stability of the business. This process can take 2, 3, or even 6 months.
The typical setup for factoring facilities, on the other hand, takes 5–7 business days. This speed is especially valuable for businesses experiencing rapid growth, companies facing seasonal demand spikes and companies waiting on slow-paying customers to operate. In other words, factoring is advantageous in industries where opportunities need to be seized in real time.
Banks are governed by standardized, non-negotiable lending policies. If your needs change or you experience rapid growth, approvals for increases or exceptions may be difficult.
Factoring companies can adjust funding limits, advance rates, and debtor limits much more flexibly, because the assets (invoices) are continually evaluated and replenished.
Factoring also includes services, such as:
These services are built into the facility. Banks generally do not offer these support functions.
Beyond funding, with non-recourse factoring, approved invoices are covered if a customer can’t pay due to insolvency (e.g., bankruptcy). That shifts a key piece of credit risk off your balance sheet and onto the factor’s—and often enables you to extend terms confidently to larger buyers.
A bank line of credit does not include credit protection; you still own the risk of non-payment.
Factoring is widely used by small and mid-sized businesses with approximately $500,000 to $30,000,000+ in annual sales, particularly in industries such as:
However, any business wanting to convert receivables into working capital can benefit.
Factoring is not a line of credit. It’s a flexible, non-debt solution that converts your receivables into cash and grows as your business grows. For companies that need faster access to working capital, are scaling quickly, or are not yet bank-qualified, factoring can be a more practical and strategic option.
Summar Financial specializes in non-recourse invoice factoring that helps companies unlock working capital quickly — without adding debt or requiring personal guarantees.
We offer:
If you’re looking for a partner that offers both capital and credit risk management, Summar is built to help you grow — not just borrow. Let’s talk.