Accounts receivable financing is used by businesses to convert sales on credit terms for immediate cash flow. A trade payable platform for suppliers and buyers to approve and pay invoices online with optional early payment discounts.
Although the terms "factoring" and "asset-based lending" sometimes can be confused and used interchangeably when looking into accounts receivable financing, there are significant differences you should be aware of when evaluating both of these alternative financing solutions.
The biggest difference between factoring and asset-based lending is that a factoring company actually purchases your invoices at a discount. In contrast, asset based lenders allow you to retain ownership of your business.
ABL financing enables you to maintain ownership of your invoices and simply borrow against them. With factoring, the lending company owns your invoices, and they will contact your customers to obtain payment.
If customers fail to make invoices payments in full by the time the terms come to an end, the factor has the right to put all efforts in collection to inquire about when payment will be made. In addition, factoring companies will often require that your customers make checks payable directly to them.
