Invoice Factoring

What is invoice factoring?

Invoice factoring lets you turn outstanding invoices into cash right away. A factoring company buys your invoices, advances you most of their value (often 70% to 90%), then collects payment from your client. Once the client pays, you receive the remaining balance minus the factoring fee.

It can help businesses with slow-paying clients cover payroll, materials, and other operating expenses without waiting 30 to 90 days.

How invoice factoring works

• Submit invoices: You send eligible invoices to the factoring company
• Receive an advance: You get a percentage of the invoice value within a few days
• Client pays the factor: Your client pays the factoring company directly
• Receive the rest: The factor sends you the remaining amount, minus fees

Costs and trade-offs

Factoring fees usually run 1% to 5% of the invoice value per month, which can make it more expensive than a loan. Your clients will also know you are using a factoring company. For many small businesses, improving payment terms, collecting deposits, and tightening follow-up on accounts receivable is a cheaper first step.