What is invoice factoring in simple terms?
Invoice factoring is when a business sells its unpaid customer invoices to a company (the factor) at a discount to receive cash upfront. The factor then collects payment from your customer.
How much does invoice factoring cost?
Factoring rates often range from about 1% to 4% per 30 days the invoice is unpaid, plus any service fees. Costs vary based on industry, customer credit quality, volume, and whether the facility is recourse or nonrecourse.
What is the difference between recourse and nonrecourse factoring?
In recourse factoring, your business covers invoices that don’t pay within a set period. In nonrecourse factoring, the factor assumes certain credit risks—commonly customer insolvency—though disputes and other exclusions may still apply.
Will my customers know I’m using a factor?
Often yes, because the factor sends a notice of assignment and collects payment directly. Some arrangements use non-notification structures, but eligibility depends on provider policies and risk.
Is invoice factoring a loan?
No. It’s typically structured as a sale of receivables. However, some arrangements function similarly to a secured line against A/R. Accounting treatment can vary; consult your CPA.
Can startups or businesses with lower credit use factoring?
Possibly. Factors focus more on the credit strength of your customers than your personal or business credit. Clean invoicing, strong debtors, and solid documentation improve feasibility.
How fast can funding occur?
Timelines vary. After onboarding and invoice verification, many first advances occur within a few business days. Subsequent fundings can be faster as processes are established.
