Overview
If your customers take 30, 60, or 90 days to pay, invoice factoring gets you that money now. You sell your outstanding invoices to a factoring company and receive 70–90% of the value upfront. When your customer pays, you get the rest minus a small fee.
It's not a loan. There's no debt on your books. Approval depends more on your customers' creditworthiness than yours, making it a strong option for businesses with solid clients but tight cash flow. Common in manufacturing, trucking, staffing, and B2B services.
How do I get one?
Key qualification requirements:
B2B Sales
Invoice factoring is generally available to businesses that sell products or services to other businesses (B2B) or government entities. Invoices should be for completed work or delivered goods.
Creditworthy Customers
The factoring company's primary concern is the creditworthiness of the customers who owe the invoices. Strong, reliable customers increase the likelihood of approval and better terms.
Unpaid Invoices
The business must have outstanding invoices that are due within 30 to 90 days. The factoring company will typically not factor invoices that are already overdue.
Minimum Volume
Some factoring companies have a minimum invoice or monthly volume requirement. This can vary depending on the industry and the specific factoring company.
Business Financials
While invoice factoring is more about the creditworthiness of your customers, some factoring companies may still review your business's financial health and operational history.
No Existing Liens
The invoices must be free of any existing liens, meaning they cannot be pledged as collateral for another loan. The factoring company will typically require that they have first rights to the receivables.
Interest Rates and Fees
Invoice Factoring fees typically range from 1% to 5% of the invoice value per month, depending on factors such as the creditworthiness of your customers, the industry, and the volume of invoices factored. The fees are usually deducted from the remaining balance once the invoice is paid by the customer.
FAQ