What Is Invoice Factoring?
Sell your unpaid invoices for cash today instead of waiting weeks or months.
Invoice factoring is the sale of unpaid B2B invoices to a third party (the factor) at a discount in exchange for an immediate cash advance. You get 80%–95% of the invoice face value upfront. When your customer pays the invoice (to the factor), you receive the remaining balance minus the factor's fee.
Factoring isn't a loan — you're selling an asset (the right to collect on the invoice). That means no debt on your balance sheet, no personal guarantee in many cases, and approval based primarily on your customers' credit quality rather than your own. It's a working-capital tool built for businesses with creditworthy commercial customers and long payment terms.
How Invoice Factoring Works
Four steps from invoice to immediate cash.
1
Issue Your Invoice
You deliver goods or services and invoice your customer on your standard Net 30, Net 60, or Net 90 terms.
2
Sell the Invoice to the Factor
You submit the invoice to the factor. They verify it and advance you 80%–95% of the face value — usually within 24 hours.
3
Factor Collects From Your Customer
Your customer pays the factor directly (in notification factoring) or pays you and you forward the funds (less common, for non-notification).
4
You Get the Remainder
Once the customer pays, the factor releases the held-back balance (the 5%–20% they kept) minus the factoring fee (typically 1%–5%).
Industries Where Factoring Works Best
Factoring is the right answer when you have B2B customers with long pay terms.
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Trucking
Net 30–60 broker pay terms; freight factoring is a mature category.
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Staffing
Weekly payroll vs. Net 30–60 client payment creates classic cash-flow gap.
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Manufacturing
Material costs up front; B2B receivables on long terms.
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Wholesale
Inventory commitments vs. distributor/retailer payment terms.
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IT Services
Project-based billing on Net 30–90 enterprise contracts.
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Gov. Contractors
Federal/state agencies pay slowly; factor advances bridge the gap.
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B2B Services
Consulting, marketing, engineering — any service billed Net terms.
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Healthcare
Medical receivables factoring (specialized — separate from B2B).
Factoring Requirements
What you typically need to qualify.
Business Type
B2B (not B2C)
Customer Credit
Commercial customers
Invoice Volume
$10K+ monthly typical
Time in Business
No minimum (often)
Pros & Cons of Invoice Factoring
Is it the right product for your situation?
✓ Advantages
- Immediate cash on invoices that would otherwise sit 30–90 days
- Scales with revenue — more invoices = more funding capacity
- Approval based on customer credit, not yours
- Often available to startups and businesses with poor personal credit
- No fixed debt on your balance sheet (it's a sale, not a loan)
- Factor handles collections (in notification factoring)
⚠ Considerations
- Only works for B2B businesses with creditworthy customers
- Customers know you are factoring (in notification factoring)
- Effective annualized cost is higher than it appears (1% per 30 days ≈ 12%+ APR)
- Recourse vs. non-recourse matters — understand which you have
- Long-term contracts and minimum volume requirements are common
Invoice Factoring FAQs
Everything you need to know before you apply.
What is invoice factoring? ▲
Invoice factoring is the sale of unpaid B2B invoices to a third party (the factor) at a discount in exchange for an immediate cash advance — typically 80% to 95% of the invoice face value. The factor then collects payment from your customer when the invoice matures. The remaining balance (less a factoring fee) is paid to you on collection.
How much does invoice factoring cost? ▼
Factoring fees typically range from 1% to 5% per 30 days. The exact rate depends on your industry, invoice volume, customer credit quality, and whether the arrangement is recourse or non-recourse. A $100,000 invoice factored at 2% over 30 days would cost $2,000 in fees.
Who qualifies for invoice factoring? ▼
Any U.S. B2B business with creditworthy commercial customers and outstanding invoices. Factors care more about your customer's credit than your own. Common qualifying industries: trucking, staffing, manufacturing, wholesale, business services, government contractors, and IT services.
What is the difference between recourse and non-recourse factoring? ▼
In recourse factoring, you (the seller) are responsible if your customer doesn't pay the invoice. In non-recourse factoring, the factor absorbs the credit risk if the customer becomes insolvent. Non-recourse factoring costs more (typically 0.5%–1% higher) because the factor takes on more risk. Most small business factoring is recourse.
Will my customers know I am factoring my invoices? ▼
In traditional (notification) factoring, yes — your customers receive notice to send payment directly to the factor. In non-notification factoring (less common, available for stronger borrowers), the arrangement is confidential. Most factors handle the customer relationship professionally, and treating factoring as a standard business finance tool minimizes any stigma.
Is invoice factoring the same as invoice financing? ▼
Closely related but not identical. Invoice financing (also called invoice discounting) is a loan against your invoices — you still own the invoice and you still collect from your customer. Invoice factoring is a sale of the invoice — the factor owns it and collects from your customer. Financing is more flexible; factoring usually advances more.
Explore Other Funding Options
Not the right fit? We offer every funding type.