Invoice Factoring for Businesses With Outstanding Receivables

How Invoice Factoring Works

Invoice factoring is the sale of your outstanding business-to-business invoices to a factoring company in exchange for immediate working capital. It is not a loan. You are not taking on debt. You are converting receivables you have already earned into cash without waiting 30, 60, or 90 days for your customers to pay. Because approval is based on the creditworthiness of your customers rather than your own credit history, invoice factoring is accessible to businesses that would not qualify for traditional financing. Factoring is available on a recourse or non-recourse basis. With non-recourse factoring, the factor assumes the credit risk if your customer does not pay. With recourse factoring, you remain responsible if the invoice goes uncollected.

Here is how the process works. You deliver goods or services to your business customers and issue invoices. Instead of waiting for payment, you submit those invoices to the factoring company. They advance you 70% to 90% of the invoice value, typically within 24 hours. When your customer pays the invoice according to their agreed terms, the factoring company releases the remaining balance to you minus a small factoring fee. Factoring is especially useful for staffing companies, trucking and freight, manufacturing, government contractors, wholesale and distribution, and construction businesses that invoice other businesses and wait weeks or months to get paid.