Once the factor collects from the end customer on the standard payment terms, they release the remainder of the invoice value to you, minus a small factoring fee – typically one to five percent. The factoring company verifies your invoices, funds up to 90% of the invoice face value, then collects on those invoices directly from your customers (via a notice of assignment). Once you are approved to work with the factor, you can sell your outstanding receivables in order to boost working capital and avoid the delay of long payment terms. What is a factoring company?Ī factoring company (or “factor”) is a financing partner that purchases your invoices in exchange for cash. It allows small businesses to unlock the cash value of their invoices long before their customers pay their bills. To prevent any confusion, the term “factoring” is often used interchangeably with “accounts receivable financing”. Invoice factoring is a form of alternative financing that involves selling your outstanding invoices to a third party (factoring company) in exchange for cash up front.īecause it’s a sale, not a loan, it doesn’t impact your credit like traditional bank financing. This guide will answer all of your questions about invoice factoring, helping you determine if it’s a good fit for your business. That likely prevents you from investing in growth opportunities or maintaining day-to-day operations that keep everything on track. These long payment cycles put many small business owners in a constant cash crunch, making it hard to keep up with critical expenses like payroll, utilities or inventory. Most invoices are set to payment terms of 30 to 90 days, meaning that from the day an invoice is sent to your customer, you’re unlikely to see that money for at least a month, if not longer. Waiting for customers to pay their outstanding invoices? You’re not alone.

Cash for outstanding invoices