Invoice Factoring and Receivables Financing
Invoice factoring can convert eligible business-to-business receivables into cash before customers pay. Instead of waiting 30, 60 or 90 days, a business can receive an advance against approved invoices and use the funds for operations or growth.
How does invoice factoring work?
The factoring company reviews the business, its customers and eligible invoices. If approved, it advances a percentage of the invoice amount. When the customer pays, the factor releases the remaining reserve minus agreed fees and other charges.
Because repayment is tied to receivables, the credit quality of the business’s customers can be a major underwriting factor.
What businesses may be a fit?
Factoring is commonly considered by businesses that sell to other businesses or government entities on payment terms and have meaningful receivables. Examples can include staffing, transportation, manufacturing, distribution, professional services, contractors and other B2B companies.
Fit depends on invoice eligibility, customer concentration, disputes, aging, contract terms, lien position and industry-specific rules.
What should a business compare?
Compare advance rate, factoring fee, minimums, contract length, recourse versus non-recourse provisions, reserves, lockbox requirements, customer notification, concentration limits, aging rules, termination fees and any due-diligence or service charges.
The headline percentage alone does not show the full economics. A business should understand how the fee changes based on how long customers take to pay.
Frequently asked questions
Is factoring a loan?
Factoring is generally structured as the purchase of eligible receivables rather than a traditional loan, though legal treatment and contract terms can vary.
Will my customers know I am factoring?
Often yes, because payment instructions may change to a factor-controlled account. The exact process depends on the program.
Can old invoices be factored?
Factors usually have aging limits and may exclude substantially past-due, disputed or otherwise ineligible invoices.
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Educational information only. Financing availability, approval, terms and costs depend on provider requirements and the business’s qualifications. AI and automation recommendations depend on the business process, systems, data and applicable rules.