Factoring vs. a line of credit for a staffing firm
Both put cash in the account before clients pay. One is tied to your invoices and grows with them; the other is tied to your agency and sits there until you need it. Here is how to tell which gap you have.
Two tools for two different gaps
Both products put cash in the account before clients pay. They do it in opposite ways. Factoring sells the invoice: the money is tied to specific receivables and comes back when the client pays. A line of credit borrows against the agency: you draw a lump sum, repay it on a schedule, and draw again. Which one fits depends on what the money is for.
Side by side
| Invoice factoring | Line of credit | |
|---|---|---|
| What it funds | Specific invoices you have already raised | Anything — onboarding, deposits, a slow month |
| Size | Up to $5,000,000, sized to your invoicing | $25,000 – $500,000, sized to your deposits |
| Minimum credit score | None — your clients are underwritten | 600 |
| Time in business | 3 months | 12 months |
| Revenue minimum | $20,000 in open invoices | $25,000 a month in deposits |
| Speed | 3–5 days to open; 24 hours per invoice after | 1–3 days to open; same-day draws after |
| How it is repaid | Your client pays the invoice | You repay each draw over 6–24 months |
| Cost runs | Only for the days each invoice is outstanding | Only on the drawn balance; nothing on an unused line |
| Grows with | Your billing — automatically | Your deposit history, reviewed every 6 months |
| Client involvement | Remit-to address changes on a notification facility | None |
| Underwritten | In-house | In-house |
When factoring is the right answer
- The cash you need is sitting in unpaid invoices. If the problem is “I have $300,000 billed and $40,000 in the bank,” factoring addresses it directly. A line borrows against the agency to fund the same gap at one remove.
- You are growing faster than your balance sheet. A line is capped at what your deposits support today. A facility grows every time billing grows, which is what a ramp-up needs.
- You are under 12 months old or under 600 credit. A line is not available yet; factoring is, with 3 months in business and no minimum score.
- Your clients are big and slow. Hospital systems, manufacturers and school districts on net-60 to net-90 are exactly the receivables factoring prices best.
When a line of credit is the right answer
- The cost is not tied to an invoice. Drug screens, PPE and orientation pay for a new crew go out before any invoice exists. A workers’ comp deposit or a premium audit true-up has no invoice behind it at all.
- Your gap is seasonal and predictable. Tax-season accounting temps or the August school ramp: open the line in a quiet quarter, draw in season, repay, draw again next year. Nothing is charged while it sits.
- You would rather clients not see a change. A line involves no one but you. Some owners weigh that above the cost difference.
- Your clients pay fast anyway. On net-15 accounts the factoring fee buys you very little; a line for the occasional bump is cheaper.
The pattern that tells you which one you need
Look at what you would do with the money the day it arrived. If the answer is “cover payroll until the client pays,” week after week, that is a factoring pattern: recurring, invoice-shaped, and growing with the business. If the answer is “get through onboarding week” or “make the carrier’s deposit,” a few times a year, that is a line pattern: occasional, lumpy, and not attached to a receivable.
Most agencies that reach a few million in billing end up with both: a facility that runs the weekly cycle and a line that sits unused until a contract starts. The order is usually factoring first, because it is available at 3 months with no credit minimum, then a line once there are 12 months of history and 600+ credit. Working capital fills the space in between for a one-time cost, and a term loan or SBA 7(a) is the tool for an acquisition.
Related: Invoice factoring · Line of credit · How payroll funding works · Compare all five products.
Short answers.
Is factoring cheaper than a line of credit?
It depends on how long your invoices are outstanding and how often you would draw the line. A factoring fee runs only for the days each invoice is open; a line costs only on the drawn balance. For recurring net-60 receivables, factoring is usually the better fit; for an occasional draw, the line is.
Can a staffing agency have both?
Yes, and many do. Timecard Capital underwrites both in-house and structures them together so the line is not drawn against receivables that are already factored.
Which one can a new agency get?
Factoring: 3 months in business, $20,000 in open invoices, no minimum credit score. A line of credit needs 12 months in business, $25,000 a month in deposits and 600+ credit.
Does a line of credit tell my clients anything?
No. A line involves only you and the funder. On a notification factoring facility, the remit-to address on your invoice changes; non-notification structures exist for larger accounts.
What if I am already factoring and want a line too?
Tell us who the factor is. The line is sized around the factored receivables, and if the goal is to replace the factor, that is a different conversation we can have on the phone.
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