Invoice Factoring for Small Businesses

How invoice factoring works

You submit invoices for work already completed. The factor verifies them with your customer and advances typically 80-90% of face value within 24 to 48 hours. When your customer pays, the factor releases the remaining balance to you minus its fee.

On a $100,000 invoice with an 85% advance and a 3% fee, you'd receive $85,000 up front and $12,000 on collection, for a total of $97,000. Facilities can be set up for a single large invoice or as an ongoing line that grows automatically with your sales.

• Recourse factoring: you buy back invoices your customer never pays. Cheaper.
• Non-recourse factoring: the factor absorbs approved credit losses. More expensive.
• Notification: your customer pays the factor directly, and knows about the arrangement.
• Non-notification: available on some facilities, usually for stronger, larger companies.

What invoice factoring costs

Factoring fees generally run 1% to 5% of invoice value for the first 30 days, with additional increments for each 15 or 30 days the invoice stays outstanding. Cost is therefore driven as much by how quickly your customers pay as by the headline rate.

Some facilities add a setup fee, a monthly minimum volume requirement, ACH or wire fees, and a lockbox charge. Ask for an all-in cost per invoice at your actual average days-to-pay — that number, not the advertised rate, is what you should compare.

One structural advantage: because underwriting weighs your customers' creditworthiness more than yours, factoring is frequently available to businesses that can't get a term loan at all.

Who invoice factoring fits

• B2B and government contractors billing on net terms.
• Freight carriers and brokers waiting on shipper or broker payments.
• Staffing agencies covering weekly payroll against monthly client billing.
• Fast-growing companies whose receivables grow faster than their cash.

Who it doesn't fit

Factoring does not work for businesses paid at the point of sale — restaurants, retail, salons. If there is no invoice, there is nothing to factor; a merchant cash advance or line of credit is the right tool there.

It also fits poorly when your customers pay slowly and unpredictably, or when your margins are thin enough that a 3-5% discount erases the profit on the job. And because factoring involves contact with your customers, consider whether that fits your relationships — though in trucking and staffing it's completely routine.

What you need to qualify

• Business-to-business or business-to-government invoicing.
• Invoices for work already completed and accepted.
• Customers with reasonable payment history and credit.
• No existing lien on your accounts receivable, or a willingness to subordinate it.

Getting a better factoring facility

Factoring contracts vary far more than the fee suggests. Term length, minimum monthly volume, exit fees and reserve release timing all move the real cost significantly. We compare those terms across partners and translate them into one number: what a typical invoice actually costs you.

If factoring isn't the right structure, we'll say so and price the alternatives against it.

Frequently asked questions

How much of my invoice do I get up front?

Advances typically run 80% to 90% of invoice face value, with the remainder released minus fees once your customer pays.

Does my customer find out I'm factoring?

Usually yes. Most facilities are notification-based, meaning your customer is directed to pay the factor. Non-notification options exist for larger, established companies.

What does invoice factoring cost?

Commonly 1% to 5% of invoice value for the first 30 days, with additional increments if the invoice stays outstanding longer. Your customers' payment speed drives the real cost.

Can I factor just one invoice?

Yes. Spot factoring for a single large invoice is available, though ongoing facilities generally price better than one-off transactions.

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