The short answer
Factoring sells your invoices and grades your customers' credit, so it works for newer shops and owners with challenged credit. A line of credit is revolving debt that grades you, so it is cheaper but harder to qualify for. If a bank will give you a real line, take it. If it will not, factoring is usually the fastest way to unlock the cash sitting in your receivables.
How each one works
Invoice factoring. You deliver the work and issue the invoice. The factor advances 80-95% of it within days, then collects from your customer on your normal terms. When the customer pays, you get the remainder minus the factor's fee. It is a sale of an asset, not a loan, which is why your balance sheet treats it differently.
Line of credit. A bank or lender approves a maximum borrowing limit. You draw what you need, pay interest only on what you draw, and repay to restore the limit. It is debt, secured by your receivables, inventory, or a blanket lien on the business.
Cost compared
Directional ranges, not quotes. Your actual offer depends on your customers, credit, revenue, and industry.
- Factoring: about 1-3.5% per 30 days the invoice is outstanding. On a $100,000 net 60 invoice, that is roughly $2,000-$7,000 for 2 months of cash flow.
- Bank line of credit: often priced near Prime plus a margin for qualified borrowers. Cheaper on paper, but the qualification bar is the real price.
- Asset-based line: about SOFR + 3-8% for larger, established shops borrowing against AR and inventory.
The honest comparison is not rate vs. rate. It is the cost of factoring vs. the cost of not having the cash: a declined order, a missed payroll, or a 2% early-pay discount you cannot take from your own suppliers.
Who qualifies for which
- Factoring underwrites your customers. If you sell to creditworthy businesses or government buyers on net 15 to net 90 terms, you can often qualify even with limited history or bruised personal credit.
- A line of credit underwrites you. Expect the lender to want at least a year or 2 in business, consistent revenue, clean bank statements, and solid owner credit.
When factoring wins
- Your customers are strong but slow: big OEMs, retailers, or government buyers on net 60 or net 90.
- You are growing faster than your bank history supports, and every new order makes the gap bigger.
- You have been declined by a bank and need cash flow this month, not after a credit rebuild.
- You want funding that scales automatically: more invoicing means more available cash, with no re-application.
When a line of credit wins
- You qualify for bank pricing and want the cheapest revolving money available.
- Your cash gaps are unpredictable rather than tied to specific invoices.
- You want flexibility to draw for anything: material, payroll, a deposit on a machine.
- You have the time and documentation for a slower, more thorough underwriting process.
Read the full breakdowns on our invoice factoring and working capital program pages, or see how the placement process works.
Manufactor Finance is a US independent commercial finance broker. We are not a bank, lender, factor, or investor. Cost ranges above are directional, not quotes, and every offer is set by the funding institution after underwriting.