Factoring vs. Private Credit: Where Does Yield Meet Risk?

In today’s search for yield, institutional investors are turning to private credit strategies that offer predictable cash flows and real economy impact. Among these, two distinct strategies often surface: factoring and private credit. Both can generate attractive risk-adjusted returns—but they differ significantly in structure, tenor, liquidity and risk profile.

So where does yield truly meet risk? Let’s break it down.

1.What Is Factoring?

Factoring is a short-term financing solution in which a business sells its accounts receivable (i.e., unpaid invoices) to a financier at a discount. The financier then collects payment directly from the buyer.

Why it matters: In Asia, SMEs often suffer from long payment cycles. Factoring helps bridge this working capital gap.

Key Features:

• Tenors: 30-120 days.

• Risk: Buyer (debtor) risk, not borrower risk.

• Collateral: Often self-liquidating through invoice settlement.

• Use case: SMEs, exporters, B2B suppliers.

2.What Is Private Credit?

Private credit typically refers to longer-tenor, direct lending solutions offered by non-bank institutions to mid-sized or large businesses. These loans are usually structured with covenants and backed by assets or cash flows.

Key Features:

• Tenors: 1-5 years.

• Risk: Corporate or project-level credit risk.

• Collateral: Real assets, shares, cash flows, guarantees.

• Use case: Growth capital, acquisition finance, structured debt.

3. Comparing Yield and Risk

4. Portfolio Role: Complementary, Not Competing

Factoring and private credit are often viewed as separate asset classes, but in a well-constructed private debt portfolio, they can complement each other:

• Factoring offers liquidity, short tenor and risk dispersion.

• Private credit offers higher yield, duration and strategic exposure.

At TIGER Asia Credit Opportunities Fund, we allocate across both through distinct share classes—leveraging our AI underwriting engine to dynamically price risk, enhance ESG screening and enable scale.

5. Bottom Line: Know Your Risk Appetite

Both strategies offer yield. The choice depends on what you’re optimizing for:

• Short-term, low-volatility yield with daily/weekly reinvestment? Consider factoring.

• Higher yield, strategic exposure with longer lock-in? Consider private credit.

The beauty lies in combining both, with the right tech stack, governance and risk controls.

Curious how we balance both at TIGER? Reach out to learn how institutional investors are tapping into Asia’s underserved debt markets with confidence.