Credit Cards or Invoice Finance: Which Is Better?

Small businesses have a number of options for meeting short-term financial needs. We offer one such option in invoice finance. Another option is the business credit card. Is it fair to say that one is better than the other? Probably not. Invoice finance and credit cards represent two vastly different forms of short-term financing with their own unique characteristics.

As you read our comparison of credit cards and invoice finance below, keep in mind that Thales Financial specializes in invoice finance. It is our business. We can help you meet your short-term financial needs should you decide that invoice finance is your best option.

Both Options Are Fast

The one thing credit cards and invoice finance have in common is arguably their biggest advantage as well: speed. Simply put, both credit cards and invoice finance are fast funding options. Credit cards are faster in the sense that a business owner can pull out the credit card and make a purchase at a moment’s notice. Invoice finance requires at least some time to arrange.

Invoice finance doesn’t take weeks or months, like small business loans, so it is a much faster option. Invoices can be converted to cash in a matter of days, if not sooner. So again, it is not as fast as credit cards but still faster than business loans.

Both Options Cost Money

Next up, consider that both funding options cost money. Businesses pay for the privilege of borrowing no matter what form it takes. Where business credit cards are concerned, companies tend to pay in two ways: annual fees and monthly interest payments.

Invoice finance involves a payment as well. Factoring companies charge a fee for their service. It can be either a flat fee or a percentage of the total value of the invoices purchased. Each factoring company sets its own rates.

The advantage invoice finance has in this regard is that it tends to limit the company’s spending. Companies sell only the invoices they need to sell to meet immediate needs. They use invoice finance on an as-needed basis.

Credit cards can be treated the same way, but they can also lead to unintended spending thanks to their ease-of-use. Moreover, getting stuck in a cycle of paying only the minimum monthly amount increases the total amount of interest a company will ultimately pay. So in that sense, credit cards can be more expensive.

Credit Cards Represent Revolving Credit

If invoice finance has a convincing advantage, it is in the fact that the practice amounts to a company borrowing from itself. It is converting outstanding debt into immediate cash in exchange for a service fee. On the other hand, credit cards represent a form of revolving credit. It is a significant difference that could make a difference to a company’s long-term financial health.

Whenever revolving credit is available, the temptation to use that credit unnecessarily exists along with it. You know this all too well if you have ever purchased something you really didn’t need using a credit card. The credit card allowed you to give yourself permission to spend. Would you have made the same expenditure had you been required to pay cash?

Invoice finance and credit cards are two options businesses can utilize to meet their short-term financing needs. One is not necessarily better than the other across the board. Each financing situation has its own unique characteristics. The same goes for invoice finance and credit cards. It is up to business owners to carefully weigh their options before choosing how to meet their financing needs. When invoice finance is the choice, Thales Financial is ready to help.