Invoice Factoring vs Asset Finance

Invoice factoring and asset finance solve different problems. Factoring releases cash from your unpaid invoices (working capital), while asset finance funds the purchase of equipment, vehicles, or machinery (capital expenditure). They are not alternatives — many businesses use both. The key question is which problem you need to solve first: cash flow gaps or capacity constraints.

Side-by-Side Comparison

Feature	Invoice Factoring	Asset Finance
Purpose	Working capital / cash flow	Equipment / vehicle purchase
How it works	Advance against unpaid invoices	Spread cost of asset over 1-7 years
Typical cost	0.5-3% service + interest on advance	3-10% APR fixed
Repayment	Automatic when customer pays	Fixed monthly over term
Security	Your invoices	The asset itself
Scales with growth?	Yes — more invoices = more funding	No — fixed to asset value
Tax benefits	Fees are tax deductible	Capital allowances + lease deductions
Best for	B2B businesses with slow-paying customers	Businesses needing equipment/vehicles

When to Use Both Together

A construction company is a good example. They need asset finance for excavators and vehicles, and invoice factoring to fund the gap between completing work and getting paid by the main contractor. The two products work on completely different parts of the balance sheet and complement each other.

Providers like Close Brothers, Bibby, and Novuna offer both products and will often give a pricing discount when you take a combined facility.

Oliver Mackman

Director, Market Invoice

Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.

Last reviewed: 5 April 2026

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Factoring vs Asset Finance FAQ

Can I have both invoice factoring and asset finance?

Yes. Many businesses use both simultaneously. Invoice factoring funds working capital (day-to-day cash flow) while asset finance funds equipment, vehicles, or machinery. Most providers, including Close Brothers, Bibby, and Novuna, offer both products and may discount pricing when you bundle them.

Which is better for a growing business?

If your growth is limited by cash flow (e.g. you can't take on new orders because you're waiting for payment), invoice factoring is the priority. If your growth is limited by capacity (e.g. you need more equipment or vehicles), asset finance is the priority. Fast-growing businesses often need both.

Which has lower interest rates?

Asset finance typically has lower headline rates (3-10% APR) because the asset itself acts as security. Invoice factoring effective rates are usually 5-15% but there are no fixed repayments — costs stop when invoices are paid. The total cost depends on your specific circumstances.