What is Invoice Factoring?
You've done the work. The invoice is out. But your customer won't pay for 30, 60, or 90 days, and your bills can't wait that long. Invoice factoring converts those unpaid invoices into immediate cash. Sell your receivables, collect 80% to 95% of the value upfront, usually within 24 hours. When your customer pays the full invoice, you get the remainder minus a small factoring fee.
This isn't a loan and doesn't add debt to your balance sheet. Approval hinges on your customers' creditworthiness, not yours. Trucking, staffing, manufacturing, and any B2B operation where receivables stack up faster than cash comes in. If you carry invoices, this product was built for you.
How do I qualify for Invoice Factoring?
Key qualification requirements:
B2B Invoices
You must invoice businesses or government entities, not consumers.
Creditworthy Customers
Your customers' ability to pay is what matters, not your own credit.
Outstanding Receivables
Current invoices due within 90 days.
No Liens on Receivables
Invoices can't already be pledged as collateral elsewhere.
How factoring works, start to finish
Factoring has four moving parts: you, your customer, the invoice, and the factor. Here is the whole cycle.
1. You deliver and invoice. The work is done or the freight is delivered. You issue the invoice on your normal terms. Net 30, net 60, whatever your customer runs on.
2. You sell the invoice. The factor verifies the invoice and wires the advance, 80% to 95% of face value. After your account is set up, this usually happens within 24 hours.
3. Your customer pays the factor. Payment goes to the factor on the invoice's normal due date. Your customer's process barely changes. They remit to a different address, and that is about it.
4. You get the remainder. Once the invoice is paid, the factor releases the held-back portion minus the fee.
A worked example. Say you factor a $40,000 freight invoice at a 90% advance rate with a 2% fee per 30 days. You receive $36,000 the day the invoice is verified. Your customer pays on day 45, so the fee comes to 3% of the invoice, or $1,200. The factor releases the remaining $4,000 minus that fee, which is $2,800. You collected $38,800 of the $40,000 total, and $36,000 of it landed six weeks before your customer actually paid.
Recourse or non-recourse: who absorbs a bad invoice
Every factoring agreement answers one question up front: what happens if your customer never pays?
With recourse factoring, you do. The factor can sell the invoice back to you or offset it against your next funding. Fees run lower because the factor takes less risk, and most agreements in trucking and staffing are written this way.
With non-recourse factoring, the factor eats the loss if your customer becomes insolvent. You pay for that protection through a higher fee, and the coverage is narrower than most owners expect. It usually applies when the customer goes bankrupt, not when there is a dispute about the work itself.
Which one makes sense depends on your customer list. A handful of large, stable accounts that simply pay slowly points toward recourse and the lower fee. Heavy concentration in one shaky customer is where non-recourse earns its price.
Factoring or something else
Factoring is one of several ways to cover the same gap. The right product depends on where your cash is stuck.
Stuck in delivered invoices: factoring. The receivable already exists. You are selling an asset you own, not taking on debt.
Stuck before the order ships: purchase order financing. The funder pays your supplier against a confirmed PO so you can produce and deliver finished goods. The line between the two products is delivery. Factoring funds invoices after the work is done. PO financing funds production before it.
Need working capital on deposit strength, this week: a merchant cash advance. An advance is sized on your bank deposits rather than your receivables, funds in 24 to 48 hours, and repays on a weekly, biweekly, or monthly schedule. It fits businesses that have no B2B invoices to factor, and B2B shops that need more than their current receivables can support.
Want standing access instead of a lump sum: a business line of credit. A line is revolving debt on your own credit profile. You draw when you need to and pay interest on the drawn balance. Factoring scales with your sales automatically. A line is capped at its limit, but costs nothing while it sits unused.
Some businesses run two of these at once. A staffing firm might factor invoices to make payroll and keep a line open for everything else. If you are not sure which fits, apply and our underwriting team will tell you what the numbers support.
Where factoring fits best
Factoring follows payment terms, and a few industries live on long ones.
Trucking and freight. Brokers and shippers commonly pay in 30 to 45 days while fuel, drivers, and insurance bill weekly. Freight factoring is the oldest use case there is, and it is why so many carriers factor every load they haul.
Staffing agencies. You pay contractors every week. Clients pay in 30 to 60 days. That spread widens with every new placement, which is why growth is usually the moment staffing firms start factoring.
Manufacturing and distribution. Materials get bought months before the receivable turns into cash. Factoring pulls the receivable forward so the next production run is not waiting on the last one's invoice.
B2B services. Marketing shops, consultancies, commercial cleaning, security companies. Anyone billing net 30 or slower to commercial accounts.
Invoices to government agencies qualify too. Federal, state, and municipal payers are slow but dependable, and factors like dependable.
Five things to check in any factoring agreement
- The advance rate. 80% to 95% is the normal range. Ask what determines yours and what would raise it over time.
- How the fee accrues. A flat 2% no matter when the customer pays and 2% per 30 days are very different costs on a slow payer. Know which one you are signing.
- Recourse terms. When can the factor charge an invoice back to you, and how many days past due before that happens.
- Minimums and term length. Some agreements require a monthly volume commitment or a 12-month term. Others run month to month, invoice by invoice.
- Notification and servicing. How your customers get payment instructions, and what they see. To some owners this matters more than the fee does.
Rates and Fees
Factoring fees typically range from 1% to 5% of the invoice value per 30 days. Your rate depends on your customers' credit profiles, your industry, and the volume of invoices you factor each month. Higher volume and stronger customer credit push fees toward the low end.
There are no application fees or hidden costs. The fee is deducted from the remaining balance once your customer pays the invoice. You see the full structure before signing anything.
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