What invoice factoring is
Invoice factoring — also called invoice financing or accounts receivable financing — converts your outstanding accounts receivable into immediate working capital. Rather than waiting 30, 60, or 90 days for customers to pay, you receive an advance against those invoices now.
How it works
- You invoice your business customers as usual.
- The financing partner advances a large share of each invoice’s value up front.
- When your customer pays, the remainder is released, less a fee.
When it’s a good fit
- You sell to other businesses on payment terms and cash is tied up in A/R.
- Long payment cycles are constraining payroll, suppliers, or growth.
- Your customers are creditworthy and pay reliably, just slowly.
What invoice factoring costs
Factoring is priced as a discount fee on each invoice (often a small percentage per 30 days the invoice is outstanding), together with an advance rate — typically 80–90% up front, with the remainder released on payment, less the fee. Your effective cost depends on how quickly your customers pay: faster-paying invoices cost less.
Recourse vs non-recourse
In recourse factoring you remain responsible if your customer doesn’t pay; in non-recourse the factor absorbs certain non-payment risk, usually at a higher fee. Know which you’re being offered.
Pros and cons
- Pros: unlocks cash tied up in receivables; scales with your sales; approval leans on your customers’ credit, not just yours.
- Cons: costs more than a bank line; your customers may be contacted for payment; it’s built for B2B businesses that invoice on terms.
How to apply — what you’ll need
Your accounts-receivable aging, sample invoices, and business bank statements. Creditworthy customers and invoices aged under about 90 days are the main drivers of approval.
The criteria above are general education, not an eligibility decision. The lender you’re introduced to makes all funding and qualification decisions.
Common questions
What is accounts receivable financing?
Accounts receivable (A/R) financing is funding secured by your unpaid invoices. Invoice factoring is the most common form — a partner advances a large share of an invoice's value now and releases the rest, less a fee, when your customer pays. It turns receivables into working capital without waiting on payment terms.
Is invoice financing good for a small business?
It can be a strong fit for small businesses that sell to other companies on terms and have cash tied up in receivables. Because the funding is based on your customers' creditworthiness and your invoices — not just your own balance sheet — it's often accessible to smaller B2B businesses. The lending partner makes the final decision.
What's the difference between invoice factoring and invoice financing?
They're closely related terms, often used interchangeably. "Invoice financing" is the broad category of borrowing against unpaid invoices; "invoice factoring" is the most common form of it, where a partner advances against the invoices directly.