Factoring and leasing are both business finance, but they solve two different problems. This page explains which one fits which situation, and when a business needs both.
Written by Marcus Wright, owner and founder of Bolton Business Finance Ltd, in financial services since 2008 and a commercial finance broker since 2019. Last reviewed September 2026.
The short version
- Factoring funds the gap between doing the work and getting paid. The amount available rises and falls with your sales ledger.
- Leasing funds a specific thing you need to buy. Fixed term, fixed payments, secured on the asset itself.
- They are not really alternatives. Most businesses that need one eventually need both.
- If the problem is that customers take 60 days to pay, leasing does not fix it. If the problem is that you need a van, factoring is the wrong tool.
- Sale and leaseback is the crossover product: it raises cash from assets you already own, in the same way factoring raises cash from money you are already owed.
What Is Factoring?
Invoice Factoring is a revolving credit facility used by businesses to raise cash from their unpaid customer invoices.
Banks and other alternative lenders will take a charge over a business’s debtor book and make the cash available. This type of business finance is suitable for businesses that trade B2B and give their clients credit terms.
It can be used by new start up businesses and long established companies. Click here to find out more information about Invoice Factoring.
The key feature is that the facility is not a fixed amount. As your sales ledger grows, so does the funding available. As it shrinks, so does the facility. That makes it a cash flow tool rather than a purchase tool.
What Is Leasing?
Leasing is a long term credit agreement used by businesses to rent an asset over an agreed period. A lease can be used to acquire cars, vans, machinery and other equipment with a large upfront outlay.
There are different types of leasing such as a Finance Lease and an Operating Lease. A lease is a type of Asset Finance, alongside hire purchase.
Leasing can also be used to raise capital by selling existing assets the business owns and then renting them back. This would be called a sale and leaseback, and is a form of asset refinance.
Unlike factoring, a lease is a fixed commitment. You know the term, the payment and the end date at the point you sign.
Factoring Or Leasing: Which One Do You Actually Need?
The two products are used for different purposes, so the honest comparison is not which is better but which matches the problem you have.
| Invoice Factoring | Leasing | |
|---|---|---|
| What it funds | The wait between invoicing and getting paid | A specific asset you need to use |
| Facility size | Moves with your sales ledger | Fixed at the value of the asset |
| Term | Ongoing and revolving, with a notice period | Fixed, typically 2 to 7 years |
| Security | A charge over the debtor book | The asset itself |
| Who it suits | B2B businesses offering credit terms | Any business buying equipment or vehicles |
| Can a start up get it | Yes, some funders have no minimum trading period | Sometimes, often with a deposit or a director guarantee |
| Effect on cash flow | Brings cash forward | Spreads a cost out |
| Raises cash from what you own | Yes, from money owed to you | Yes, through sale and leaseback on owned assets |
When factoring is the right answer
The work is done, the invoice is raised, and the money is 30 to 90 days away. You have wages, fuel, subcontractors or stock to pay before then. Nothing about leasing helps with that. Factoring closes the gap and the facility keeps pace as you take on more work.
When leasing is the right answer
You need a machine, a vehicle or a piece of equipment to take on the work in the first place. Paying cash for it would drain the bank account you need for day to day trading. Leasing spreads the cost over the working life of the asset so it pays for itself out of the revenue it generates.
When a business needs both
This is more common than either on its own. A haulage operator finances the trucks on hire purchase or lease and runs an invoice finance facility against the payment terms its customers insist on. A recruitment agency leases nothing much at all but lives entirely on payroll funding. A manufacturer leases the machinery and factors the ledger.
The two facilities sit alongside each other without conflict, because they are secured on different things. A lender taking a charge over your debtor book is not taking security over your vans, and the reverse is also true.
The crossover: raising cash from assets you already own
If you need a lump sum rather than an ongoing facility, and you own vehicles or equipment outright, sale and leaseback puts cash into the business against those assets. It works on the same principle as factoring, turning something you already have into working capital, but it draws on your fixed assets instead of your sales ledger.
For businesses with both a debtor book and owned equipment, it is worth pricing up both routes before committing to either.
Related Comparisons And Guides
- Invoice discounting vs factoring, the comparison most businesses actually need
- Invoice finance explained
- What factoring costs
- Asset finance and leasing explained
- Asset refinance and sale and leaseback
Factoring vs Leasing? Get In Touch Today To Compare Your Options
Tell us the problem, not the product
If you are not sure which one you need, describe the situation and we will tell you. We place both invoice finance and asset finance across a panel of 135+ lenders, so there is no incentive here to push you toward one over the other. Free service, no broker fee on either product.
About the author
Marcus Wright is the owner and founder of Bolton Business Finance Ltd. He has worked in financial services since 2008, beginning his career at Santander, and spent time on the lender side at an independent invoice finance provider before becoming a commercial finance broker in March 2019.
He founded Bolton Business Finance in 2020 to give businesses access to the whole lending market rather than one bank’s own product range. The firm is a member of the National Association of Commercial Finance Brokers and works with a panel of 135+ lenders.
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Bolton Business Finance Ltd is an independent commercial finance brokerage, not a lender. We are not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. All lending is for business purposes only. This page describes general market practice as at September 2026 and is not a quote. Product features and eligibility vary between lenders. Registered address: Westgate House, 1 Westgate Avenue, Bolton, Greater Manchester, BL1 4RF. Company number 12495909.