Both bring funds forward in the operating cycle, but financing sources, repayment, documents and risk allocation differ.
An unsuitable choice can add costs. Revolving credit may be inconvenient where the gap solely reflects long payment terms on a completed delivery. Factoring cannot normally fund purchasing before delivery creates a receivable.
Revolving credit finances future business expenses. Conventional factoring converts existing receivables into cash before their payment date.
Goods have been delivered but payment comes later
The supply or service is confirmed and documents signed, but the contract allows deferred payment.
Funds are needed before purchasing or fulfilling an order
Stock, raw materials, supplies, suppliers, logistics or other operating expenses need upfront payment.
Unsure whether factoring or revolving credit fits?
We can review the cash cycle, agreements, receivables, turnover and existing debt to identify a suitable financing structure.
Request a preliminary assessmentHow revolving credit works
The bank approves a limit. The business draws funds in portions, repays debt and reuses restored headroom during the facility term.
It can support recurring expenses whose amount or timing is not fully known, such as repeated stock purchasing, raw material payments or new orders.
Typical revolving credit uses
- stock purchasing for resale;
- paying for raw materials and supplies before production;
- supplier and contractor advances;
- seasonal inventory;
- new orders and contracts;
- temporary cash flow gaps;
- a financial reserve for recurring expenses.
The business remains the borrower and must repay drawdowns even if a customer pays late. Banks therefore assess finances, turnover, existing debt and debt servicing capacity.
How factoring works
In conventional factoring, the supplier delivers goods or services on deferred terms. Once the monetary claim arises, it is assigned to a factor in exchange for financing before the contractual payment date.
Three parties are usually involved:
- the supplier — delivered goods or services;
- the customer, or debtor — must pay for the supply later;
- the factor — finances the supplier against the receivable.
Assessment covers the supplier, agreement, supply quality, documents and customer creditworthiness. Its depth depends on the product and factor's terms.
Typical factoring uses
- obtaining funds soon after delivery;
- shortening the gap between supply and payment;
- continuing purchases before receivables are collected;
- offering customers longer payment terms;
- accelerating capital turnover;
- delegating some receivables monitoring to the factor;
- with non-recourse arrangements, also managing non-payment risk.
Factoring and revolving credit: detailed comparison
| Criterion | Factoring | Revolving credit line |
|---|---|---|
| Basis for financing | A confirmed monetary claim against a customer. | A bank decision granting a credit limit to the borrower. |
| When funds are available | Usually after supply, services and documentation. | After facility opening, before purchasing, supply or order fulfilment. |
| Main purpose | Accelerate cash collection from receivables. | Finance current and future operating expenses. |
| Parties assessed | Supplier, agreement, delivery and debtor, depending on the product. | Borrower, owners, turnover, accounts, existing debt and security. |
| How funds are repaid | The debtor pays the factor; recourse may require the supplier to return financing. | The borrower repays principal and interest to the bank. |
| Collateral | Conventional asset collateral is often unnecessary, but the receivable underpins financing. | The facility may be unsecured or secured depending on the amount and bank decision. |
| Limit | Linked to debtors, agreements, supplies and the factor's internal limits. | Linked to the borrower's finances and creditworthiness. |
| Customer non-payment risk | Depends on whether financing is with or without recourse. | Revenue collection risk remains with the borrower. |
| Flexibility | Financing is available only against eligible claims. | Drawdowns can fund different expenses permitted by facility conditions. |
| Suitable scenario | Supply is complete but the customer pays later. | Funds are needed before receivables arise. |
Recourse and non-recourse factoring
The structure affects cost and who bears customer non-payment risk.
Non-recourse factoring does not automatically cover every dispute. Goods quality, returns, unsigned documents, counterclaims and supply breaches are governed separately.
When factoring may be preferable
When revolving credit may be preferable
Three practical examples
The chain accepts goods but pays weeks later. Delivery and signed documents exist, and funds are needed for the next batch. Factoring usually fits the source of the cash gap more closely.
Stock has not been purchased and no customer receivables exist. Funds are needed before sales begin. Revolving credit or a working capital loan is often more appropriate.
Revolving credit finances raw materials and production. After delivery on deferred terms, factoring accelerates revenue collection. Properly structured, the products can complement each other.
Which is more cost-effective?
There is no universal answer. Compare the total cost for the particular period and transaction, rather than just a quoted rate or fee.
When calculating revolving credit costs, check
- interest for the actual drawdown period;
- facility opening or amendment fees;
- unused facility fees where applicable;
- individual drawdown fees;
- valuation, insurance and collateral registration costs;
- higher rates following turnover or other condition breaches;
- mandatory repayment deadlines for each drawdown.
When calculating factoring costs, check
- financing fees;
- factoring service fees;
- actual financing period;
- recourse and debtor risk coverage costs;
- initial financing percentage and residual payment arrangements;
- additional waiting-period costs;
- electronic document exchange and administration expenses;
- consequences of disputes, returns or customer non-payment.
Calculate RUB costs for the same period and amount. Also consider collateral, operating expenses, non-payment risk and effects on other available limits.
Documents you may need
| For factoring | For revolving credit |
|---|---|
| Customer agreement and deferred payment terms. | Constitutional and registration documents. |
| Documents confirming goods or services supplied. | Financial or tax statements. |
| Debtor information and payment history. | Business bank account statements. |
| A schedule of monetary claims to be assigned. | Existing loan, borrowing and leasing information. |
| Customer account ledger or equivalent information. | Agreements, invoices and a limit requirement calculation. |
| Evidence that the supply is not disputed. | A payment calendar and drawdown repayment source. |
Exact requirements depend on the bank, factor, amount, industry, business type and structure. Fewer documents or additional explanations may be required.
Choosing a product: step by step
Identify where the cash shortage arises
Before purchasing or production, consider revolving credit. After completed supply with deferred payment, assess factoring.
Check whether an eligible claim exists
Conventional factoring requires confirmed receivables acceptable to the factor. Overdue, disputed or unsubstantiated claims may not qualify.
Match financing duration to the cash cycle
The drawdown term should cover expenditure through revenue collection. Factoring should allow for deferred payment and any additional waiting period.
Assess borrower and debtor quality
The business's finances are particularly important for revolving credit. Factoring places substantial emphasis on the agreement, supply and customer creditworthiness.
Calculate the full cost
Compare all fees, borrowing duration, collateral cost, recourse risk and administration expenses.
Check whether the products can be combined
Revolving credit may work before delivery and factoring afterwards. Check assignment restrictions, pledged receivables and existing loan terms.
Need to compare specific offers?
We assess the full cash cycle as well as quoted rates: when funds are needed, how they return, available documents and product fit.
Review your financing needsCan factoring and revolving credit be used together?
Yes. They may finance different stages: revolving credit before delivery, factoring after receivables arise.
One possible sequence is:
- draw revolving credit to purchase raw materials;
- produce and deliver goods on deferred terms;
- assign the resulting claim to the factor;
- receive factoring financing;
- repay the drawdown or fund the next cycle.
First check whether receivables are already pledged to a bank, assignment is permitted and the existing facility contains restrictions.
Common business mistakes
- choosing solely by advertised rates;
- using short drawdowns for long-term investment expenses;
- attempting to factor disputed or overdue receivables;
- not checking recourse conditions;
- treating non-recourse factoring as protection from every commercial dispute;
- ignoring service fees and additional waiting periods;
- requesting revolving credit without calculating the operating cycle;
- overlooking assignment prohibitions and restrictions;
- assigning a claim already pledged as collateral;
- not matching drawdown repayment to revenue receipts.
Choosing finance for a cash flow gap
Identify the cause first.
When to seek help
Help is useful when several products are offered but their full cost, duration and repayment sources are difficult to compare objectively.
A preliminary review is also useful where:
- revolving credit was declined or the limit is insufficient;
- a factor will not accept a debtor;
- existing debt is high;
- receivables are already pledged;
- purchasing and deferred payment financing must be combined;
- revolving credit, factoring, overdrafts and standard loans need comparison;
- agreements contain restrictions or complex fees.
Compare the cash cycle before price. Revolving credit often helps before supply; factoring can help after supply on deferred terms. Complex cycles may use both.
Frequently asked questions
Which is cheaper: factoring or revolving credit?
It depends on duration, amount, fees, borrower and debtor quality, recourse and security. Compare total cost for an identical financing period.
Can factoring be arranged before delivery?
Conventional factoring usually requires an existing monetary claim. Revolving credit, a working capital loan or special purchasing finance may fund the period before delivery.
Does factoring require collateral?
Conventional property or equipment collateral is often unnecessary. The claim, agreement, supply documents and debtor quality underpin financing.
Who repays factoring financing?
The customer pays the factor. Under recourse factoring, the supplier may have to return financing if the debtor fails to pay, according to the agreement.
Can factoring and revolving credit be combined?
Yes, if agreements do not impose conflicting restrictions. Revolving credit may fund purchasing before supply and factoring may accelerate cash collection afterwards.
Need factoring, revolving credit or another product?
Submit an enquiry and we will assess the cash cycle, turnover, receivables, documents and existing debt to identify a realistic financing option.
Request a preliminary assessment