Invoice Factoring: Get Paid Now for Your Invoices

If your customers are other businesses that pay in 30, 60 or 90 days, factoring turns those invoices into cash now. A factoring company buys your invoices at a discount, advances you most of the value right away, and collects from your customer.

How it works

1. You deliver the work and send the invoice.
2. The factor advances a large share of the invoice, often 80–90%.
3. Your customer pays the factor.
4. The factor sends you the rest, minus its fee.

Example: a $10,000 invoice, 90% advance, 3% fee for 30 days. You get $9,000 now; when the customer pays, you get $10,000 − $9,000 − $300 = $700. Total cost: $300.

Recourse vs non-recourse

• Recourse: if your customer doesn’t pay, you buy the invoice back. Cheaper.
• Non-recourse: the factor absorbs the loss if the customer goes bankrupt (read the definition carefully). More expensive.

Who uses factoring

• Trucking companies waiting on brokers.
• Staffing agencies paying weekly payroll.
• Distributors selling to retail chains.
• Contractors and government suppliers.

Pros and cons

Pros	Cons
Approval based on your customers’ credit, not just yours	More expensive than a bank line of credit
Fast funding	Customers know you factor
Grows with your sales	Contracts can include minimums and long terms
Open to newer businesses	Fees add up when customers pay slowly

Before you sign

Ask about the fee schedule by days outstanding, any monthly minimums, termination fees, and whether you must factor all invoices or can choose. When you qualify, compare with a line of credit.

Frequently asked questions

How much does invoice factoring cost?

It depends on the factor and how long customers take to pay. A 3% fee on a $10,000 invoice paid in 30 days costs $300.

What is recourse factoring?

If your customer doesn't pay, you buy the invoice back. It's cheaper than non-recourse factoring.

Can new businesses use factoring?

Yes. Approval depends mostly on your customers' credit.