If your B2B company bills on 60 to 90 day payment terms, invoice factoring and a short-term loan can both carry you until customers pay, but they charge for the wait differently. A factor buys the invoice and its fee usually grows with each period the invoice stays open, while a short-term loan's cost follows its own rate, fees and repayment schedule. We compare underwriting, recourse, customer notice and liens, then price $100,000 of invoices paid at 60 and at 90 days.
Should a B2B company on 60 to 90 day payment terms use invoice factoring or a short-term loan?
Both products close the same gap: you've delivered the work and paid your costs, and the cash arrives two or three months later. Factoring is tied to specific invoices and the days they stay unpaid, while a short-term loan is tied to your business as a whole and its own repayment schedule.
In the Federal Reserve's 2026 Report on Employer Firms (the 2025 Small Business Credit Survey of employer firms with 1 to 499 employees, fielded September 3 to November 14, 2025; read November 2, 2026), operating expenses were the most common reason firms sought financing (56%), and 42% of applicants received the full amount they sought.
| Question | Invoice factoring | Short-term business loan |
|---|---|---|
| What you get | An advance on specific invoices, the rest less fees at payment | A lump sum repaid on a set schedule |
| Whose credit matters most | Often your customers' payment records | Your business's finances, and often the owner's credit |
| How cost moves with days outstanding | Usually rises with each period the invoice stays open | Set by the rate, fees and term |
| Who your customer pays | The factor, once notified | You |
Factoring tends to fit when your customers are more creditworthy than your company, sales are outgrowing any loan limit, and you can accept customers paying a third party. A short-term loan tends to fit a one-time gap, a business with solid financials, and an owner who'd rather customers never hear about the financing.
Who gets underwritten, and the lien each one files
A factor's main risk is your customer, so it typically checks your customers' payment history, confirms the invoices are valid and undisputed, and searches for earlier liens on your receivables. Many factors still review your credit, especially on recourse terms, but a young company with creditworthy customers can often qualify for factoring sooner. A short-term lender looks at your business instead: bank statements, revenue, existing debt, time in business and often the owner's credit and a personal guarantee. Requirements vary by lender and by factor, and approval is never certain in advance.
Both usually leave a UCC-1 filing behind. UCC 9-109(a)(3) (read November 2, 2026) brings "a sale of accounts" under Article 9, so a factor buying your invoices commonly files a financing statement much as a secured lender does, and lenders often file one too, sometimes as a blanket lien on all business assets. If a lender already holds a lien on your receivables, a factor will usually want it released or subordinated first, as our guide to factoring with an existing bank lien explains.
Recourse and customer notice under UCC Article 9
UCC 9-608(b) says that when the underlying transaction is a sale of accounts, "the debtor is not entitled to any surplus, and the obligor is not liable for any deficiency." Factoring agreements usually reallocate that risk by contract. Under recourse factoring, you buy back or replace an invoice the customer hasn't paid within a set period. Under non-recourse factoring, the factor absorbs specified credit losses, often only a customer's insolvency, and disputes usually stay with you; our recourse vs non-recourse factoring guide lists the clauses to check. With a loan, you owe the full balance whether or not your customer pays.
Notice is where factoring reaches your customer. Under UCC 9-406(a), your customer may keep paying you until it receives an authenticated notification that the amount due has been assigned and that payment is to be made to the assignee. After that, paying you no longer discharges the invoice. Under 9-406(c), your customer can also ask for reasonable proof of the assignment. A short-term lender usually never contacts your customers.
Pricing $100,000 of invoices paid at 60 and at 90 days
Take an assumed distributor holding $100,000 of invoices from one creditworthy customer. Every term below is an assumption, and none is a market quote.
- Factoring: an 85% advance ($85,000), a fee of 1.5% of face value per 30 days or part of 30 days outstanding, the reserve returned less fees at payment, and no other fees.
- Loan A: $85,000 at 18% simple annual interest (actual days over 365), a 2% origination fee ($1,700) paid separately at closing, repaid in full the day the customer pays, with no prepayment penalty.
- Loan B: $85,000 with a fixed 7% fee ($5,950), repaid in 26 weekly payments of $3,498.08 starting on day 7, with no discount for early payoff.
| Assumed result | Factoring | Loan A | Loan B |
|---|---|---|---|
| Cash on day 1 | $85,000 | $85,000 | $85,000 |
| Total cost if paid on day 60 | $3,000 | $4,215.07 | $5,950 |
| Total cost if paid on day 90 | $4,500 | $5,472.60 | $5,950 |
| Cost of the extra 30 days | $1,500 | $1,257.53 | $0 |
| Repaid before a day-60 payment arrives | $0 | $0 | $27,984.62 (8 payments) |
| Repaid before a day-90 payment arrives | $0 | $0 | $41,976.92 (12 payments) |
The factoring fee is 2 periods × 1.5% × $100,000 = $3,000 at 60 days, so the reserve returns $15,000 - $3,000 = $12,000; at 90 days it's a $4,500 fee and a $10,500 rebate. Loan A's interest is $85,000 × 18% × 60 ÷ 365 = $2,515.07 at 60 days and $3,772.60 at 90 days, plus the $1,700 fee.
Factoring cost follows the calendar: both totals equal a simple annualized cost of about 21.5% on the $85,000 advanced, and a payment on day 61 would cost the full third period, $4,500. Loan A's fixed fee weighs more on a short borrowing, so it would need a rate below about 13.4% to undercut this factoring offer at 90 days and below about 9.3% at 60 days. Loan B's payments begin before the invoice is paid, so by day 60 you've sent $27,984.62 back to the lender and part of the gap reopens. Change the assumptions and the order can flip, and our guide to annualizing a factoring quote shows how to set any offer beside a loan's APR.
Invoice factoring pros and cons for a cash flow gap
| Pros of factoring for a cash flow gap | Cons of factoring for a cash flow gap |
|---|---|
| Funding grows with the invoices you sell | Under per-period pricing, the fee rises while a slow payer runs late |
| Approval often leans on your customers' payment records | Customers are told to pay the factor |
| Nothing goes back to the factor until your customer pays | Under recourse terms, unpaid invoices come back to you |
| Many factors handle collections | Minimum volumes, termination fees and a lien on all receivables can limit other financing |
Our guide to customer relationships when factoring covers the customer conversation. A short-term loan reverses these trade-offs. Customers stay out of it and the terms are set at signing, but the amount doesn't grow with sales and repayment may begin before invoices are paid. EQ Funding routes one application to lenders who compete for it, including term loan and invoice factoring providers, and each lender decides after reviewing your application.
Disclosures and denial notices for each product
Some states require a cost disclosure before you sign. New York's 23 NYCRR Part 600 (read November 2, 2026) sets a factoring disclosure table with rows for "Funding Provided," "Estimated Annual Percentage Rate (APR)" and "Finance Charge," and the APR row must explain the provider's payment-timing assumption, for example "This estimate assumes the account debtor will pay the invoice on the invoice due date." Section 600.19 sets how to test whether an offer is "equal to or less than $2,500,000." On 60 to 90 day terms that assumption matters, because a customer who pays late can push your cost above the estimate.
California's DFPI summarizes its commercial financing disclosure law (SB 1235, read November 2, 2026). A provider must disclose the total amount of funds provided, the total dollar cost of financing, the term or estimated term, the payments and its prepayment policies, and "A recipient must sign the disclosures before the provider may finalize the transaction." The page addresses factoring providers directly, so ask whether your offer is covered.
If you're turned down, Regulation B sets the notice timing. Under 12 CFR 1002.9(a)(3) (read November 2, 2026), a business with gross revenues of $1 million or less in its preceding fiscal year gets the general rules, including notice within 30 days after the creditor receives a completed application. For a business above $1 million, or for "credit incident to a factoring agreement," the creditor must notify you within a reasonable time and give written reasons if you ask in writing within 60 days.
Where an SBA working capital line fits
If the gap recurs and you can wait through an SBA lender's review, a receivables line is worth pricing. SBA's SOP 50 10 8.1 (effective October 1, 2026) says a Working Capital CAPLine applicant "must generate accounts receivable (not notes receivable), and/or have inventory," caps CAPLines at $5,000,000, and makes ineligible for inclusion any receivable due by its original terms more than 180 calendar days from the invoice date, unless acceptable letters of credit or credit insurance support it. Net 60 and net 90 invoices fit inside that window. The SOP also says "Factoring agreements are not eligible for refinancing" in its 7(a) refinancing rules, so moving from a factor to an SBA loan usually means winding the factoring down as customers pay. Our SBA CAPLines vs bank line of credit guide compares the options.