Invoice Factoring for Small Businesses
Turn unpaid invoices into capital you can use
What is Invoice Factoring?
Invoice factoring is a financial tool that allows your business to convert unpaid invoices into immediate working capital. Instead of waiting 30, 60, or even 90 days for customers to pay, you sell your accounts receivable to a third-party “factor”. They advance you the majority of the invoice’s value—typically 80% to 90%. Once your customer pays the factor directly, you receive the remaining balance, minus a small service fee.
Why Choose Invoice Factoring?
Immediate Liquidity
Get funds fast to cover payroll, purchase inventory, or fund new growth opportunities— without the long wait times of bank loans.
Debt Free Funding
Since this is an asset sale, not a loan, it does not add debt to your balance sheet or impact your credit score.
Outsourced Collections
Save time and administrative costs by letting the factor handle payment follow-ups and collections for you.
FAQs About Invoice Factoring
1. Is Invoice Factoring a Loan?
No, it is an asset sale, not a loan. Because you are selling an asset (your accounts receivable), it does not add debt to your balance sheet, which helps maintain a healthy debt-to-equity ratio.
2. How quickly can I receive funds?
Once your account is set up, most providers offer funding within 24 to 48 hours of submitting an invoice. Some specialized providers, particularly in the freight industry, offer same-day or instant funding.
3. How much does invoice factoring cost?
Factoring fees, also known as “discount rates,” typically range from 1% to 5% of the invoice value per month. Rates are influenced by your industry, monthly volume, and the creditworthiness of your customers.
4. What are the requirements to qualify?
Unlike bank loans, approval is based primarily on your customers’ creditworthiness. Common requirements include:
- Having creditworthy commercial or government clients.
- Providing a recent Accounts Receivable (A/R) aging report.
- Invoices must be for completed work and free of existing liens.
5. Will my customers know I am factoring my invoices?
In most cases, yes. This is called “notification factoring,” where customers receive a “notice of assignment” instructing them to pay the factor directly. However, some providers offer “non-notification” factoring for an additional fee to keep the arrangement confidential.
6. What happens if a customer doesn't pay?
This depends on your agreement:
- Recourse Factoring: You are responsible for buying back the invoice if the customer fails to pay.
- Non-Recourse Factoring: The factor assumes the credit risk and absorbs the loss if the customer becomes insolvent.
Take the Next Steps for Your Business
Our team is ready to help you explore your financing options and find the term loan that fits your goals.