Turn unpaid invoices into cash now — not in 60 days.
Invoice factoring lets you sell your outstanding B2B invoices to a factoring company and get most of the money within a day — instead of waiting on Net-30, 60, or 90 terms. Learn exactly how it works, what it costs, and who qualifies, then compare factoring companies through Fundur with one application.
Fundur is a financing marketplace, not a factoring company or lender. Checking your options is a soft inquiry and won't affect your credit score.
as soon as tomorrow$85,000/now
Illustrative only. Your advance rate, fee, and reserve depend on your customers, industry, and the factoring company.
What is invoice factoring?
Invoice factoring is a way to get paid early for work you've already done. You sell your unpaid B2B invoices to a factoring company at a small discount, and it advances you most of the cash right away — then collects the full amount from your customer when the invoice comes due.
The most important thing to understand up front: factoring is not a loan. You aren't borrowing money and adding debt to your balance sheet — you're selling an asset (the invoice, and the right to collect on it) for cash today. That single distinction shapes everything else about how it works, what it costs, and who can qualify.
Because you're selling the invoice, the factoring company cares most about whether your customer will pay it — not about your own credit score or how long you've been in business. That makes factoring reachable for newer companies and businesses that couldn't get a conventional bank loan, as long as they invoice creditworthy customers.
The trade-off is cost and customer involvement. Factoring is generally more expensive than bank financing, and in most arrangements your customer is notified and pays the factoring company directly. It's a tool built for one specific problem: you've delivered the work, but slow-paying customers are starving your cash flow. If your need is a general operating cushion instead, a business line of credit or working capital loan may fit better.
You get most of the invoice immediately. The reserve is held back — not a fee — and paid to you once your customer settles the invoice, minus the factor's fee.
How does invoice factoring work?
A factoring relationship runs on a simple cycle that repeats with each batch of invoices: you invoice, the factor advances, your customer pays the factor, and the factor releases the rest. Here's the full loop.
You deliver & invoice
Finish the job or ship the goods and issue a normal invoice to your B2B customer on their usual terms.
You sell the invoice
Send that invoice to the factor. It verifies the work is done and the invoice is valid and undisputed.
Factor advances cash
Usually within a day, the factor pays you the advance — commonly 80–90% of the invoice's face value.
Customer pays the factor
Your customer pays the invoice — to the factor, not you — on their normal Net-30/60/90 schedule.
Reserve released
The factor sends you the remaining reserve, minus its factoring fee. The cycle repeats with your next invoices.
Two things that surprise first-time users
Your customer is usually notified. Most factoring is "notification" factoring: the factor sends your customer a Notice of Assignment (NOA) telling them to remit payment to the factor, and files a UCC-1 to record its claim on your receivables. The factor may also verify invoices directly with your customer. This is routine in industries like trucking and staffing — but it does mean your customer knows you're factoring. (Some larger, stronger businesses qualify for non-notification factoring, where the customer isn't told.)
Setup happens once; funding is ongoing. The first approval and paperwork take a few days to a couple of weeks. After that, advances on new invoices are often same-day. Depending on your contract, you might factor every invoice, only invoices from certain customers, or occasional one-off invoices — see contract structure below.
The three numbers that define a factoring deal
Almost every factoring quote comes down to three figures. They're easy to mix up — and the difference between them is the difference between what you receive and what it costs.
The share of the invoice's face value the factor pays you upfront. General B2B invoices run about 80–90%; freight can reach the mid-90s. This is cash you get now — not a cost.
The rest of the invoice, held in a reserve account until your customer pays. It's your money on hold, not a charge. When the invoice settles, you get the reserve back minus the fee.
The factor's actual cost — also called the discount rate. Often charged per 30-day period the invoice stays unpaid, so a slow-paying customer costs more. This is the number to compare.
Keep them straight: the advance rate and reserve are just two halves of your own invoice — one paid now, one paid later. Only the factoring fee is money you give up. A common mistake is reading an "85% advance" as a "15% cost." It isn't — you still receive that reserve; you only lose the fee.
How high your fee runs depends on your customers' credit, your monthly volume, the average invoice size, how quickly customers pay, your industry, and whether the deal is recourse or non-recourse. Watch, too, for extras some factors add — wire fees, monthly minimums, or a higher rate once an invoice ages past 30, 60, or 90 days. Always ask for the all-in cost, not just the headline rate.
Follow a $100,000 invoice through factoring
The clearest way to understand factoring is to watch a single invoice move. Here's a $100,000 invoice at an 85% advance and a 3% fee — every dollar labeled, start to finish.
advance now
paid later
On day one you sell a $100,000 invoice. The factor advances 85% — $85,000 — straight to your account, usually within a day, and holds the remaining $15,000 as a reserve. You now have working cash weeks before your customer was ever going to pay.
About 60 days later, your customer pays the full $100,000 to the factor. The factor takes its 3% fee — $3,000 — and releases the rest of your reserve: $12,000. Add it up and you received $97,000 of your $100,000 invoice. The $3,000 you gave up — just 3% — is the entire cost of getting paid two months early.
Note the reserve is not a fee. Of the $15,000 held back, you got $12,000 of it returned. Your true cost is only the $3,000 factoring fee — not the 15% reserve.
Illustrative only — not a quote. Actual advance rates, fees, and reserves vary by factoring company and depend on your customers' credit, invoice size and age, monthly volume, industry, and whether the agreement is recourse or non-recourse. Many factors price the fee per 30-day period, so a customer who pays in 90 days can cost more than one who pays in 30.
Who's on the hook if the customer doesn't pay?
Every factoring agreement is either recourse or non-recourse. The difference decides what happens to an invoice your customer never pays — and it's the single biggest driver of the fee.
You buy back unpaid invoices
The most common and lowest-cost structure. If your customer doesn't pay within a set window — often 60–90 days — you repay the advance or swap in another invoice. You keep the credit risk.
- Lower factoring fees
- Easier to qualify for
- You're liable if a customer defaults
- Best when your customers reliably pay
Who carries the risk: you do.
The factor absorbs certain losses
The factor eats the loss if your customer can't pay — but read the fine print. Most non-recourse deals only cover customer insolvency or bankruptcy, not slow payment, disputes, or your own errors.
- Higher fees (often 0.5–1.5% more)
- Protection is narrow — usually insolvency only
- Stricter customer-credit requirements
- Best for concentrated or higher-risk customers
Who carries the risk: the factor — for covered reasons only.
Don't read "non-recourse" as "guaranteed." If your customer withholds payment over a dispute — a damaged shipment, a disagreement about the work — that's typically not covered, because it isn't an insolvency. Non-recourse protects against a customer going broke, not against every reason an invoice goes unpaid. Compare exactly what each factor's non-recourse clause covers before paying extra for it.
Invoice factoring vs invoice financing
These two get used interchangeably, but they're structurally different. "Invoice financing" and "accounts receivable financing" usually mean the same thing — and it isn't factoring.
With invoice factoring, you sell the invoice. The factor owns it, collects it directly, and your customer is typically notified. It isn't debt.
With invoice financing (a.k.a. accounts receivable financing), you borrow against the invoice and use it as collateral. You keep ownership, you still collect from your customer yourself, and the arrangement usually stays private. It is a loan — it shows up as debt on your balance sheet, and you repay the lender once your customer pays you.
Which is better depends on what you value. Financing keeps collections and the customer relationship in your hands and can cost less, but you take on debt and you're still chasing payment. Factoring hands off collections entirely and doesn't add debt, but costs more and involves your customer. Both beat waiting 60 days with no cash.
"Accounts receivable financing" is an umbrella term that can describe either approach depending on the provider — always confirm whether you're selling the invoice or borrowing against it.
Invoice factoring requirements
Factoring qualification looks almost nothing like a bank loan. Because the factor is buying your invoices, it underwrites your customers more than it underwrites you. Here's what actually matters.
Invoices that usually qualify
- B2B or B2G invoices for completed, accepted work
- Customers with solid payment histories
- Standard Net-30 / 60 / 90 terms
- Invoices that are current or only lightly aged
- Undisputed, free of offsets or claims
Invoices that are hard to factor
- Consumer (B2C) invoices
- Deposits, pre-billing, or unfinished work
- Invoices already past due or heavily aged (90+ days)
- Anything in dispute or subject to a chargeback
- Customers with poor credit or a history of nonpayment
Why your customer's credit matters more than yours
When you factor an invoice, the factor's real question is "will this customer pay this bill?" — so it checks your customer's credit and payment history, not just your business's. That's why a young company with no bank-loan track record can still factor, as long as it sells to reputable, bill-paying customers. It also means a customer with weak credit can make an invoice hard to factor even when your own business is healthy. Most factors still ask for a personal guarantee — but for factoring it's usually a validity guarantee: you're warranting that the invoices are real and undisputed, not personally guaranteeing that every customer pays.
Industries that rely on invoice factoring
Factoring is most popular wherever businesses do the work first, invoice creditworthy customers, and then wait weeks or months to get paid. If that's your model, you're in the core of the market.
The honest pros and cons of factoring
Factoring solves a real problem well — but it isn't free and it isn't right for everyone. Weigh both sides before you commit.
Where factoring wins
- Fast cash — advances often land within a day, far quicker than a bank loan.
- Not debt — you sell an asset, so it doesn't add a loan to your balance sheet.
- Easier to qualify — built on your customers' credit, not yours; open to newer businesses.
- Scales with sales — the more you invoice, the more funding is available.
- Collections handled — the factor chases payment, freeing your time.
Where to be careful
- Costs more than bank financing — fees can add up on thin margins.
- Customer involvement — in notification factoring, your customers pay and hear from the factor.
- Contract terms — some agreements include monthly minimums, long notice periods, or termination fees.
- Recourse liability — with recourse factoring, an unpaid invoice can come back to you.
- Not for every invoice — B2C, disputed, or heavily aged invoices generally don't qualify.
A word on contract structure, since it's where the surprises hide. Spot factoring lets you factor a single invoice with no long-term commitment — flexible, but priced higher per invoice. An ongoing whole-ledger facility factors most or all of your invoices under a contract; it's cheaper per dollar but may carry monthly minimum volumes, a set term, and advance notice to cancel. Read for minimums, termination fees, and how long you're locked in before you sign.
Invoice factoring vs other business financing
Factoring is one tool among several. Here's how it lines up against the other ways to fund a business — and when a different product fits the job better.
| Invoice Factoring | Line of Credit | Term Loan | Working Capital Loan | |
|---|---|---|---|---|
| What it is | Sell your invoices | Revolving credit line | Lump sum, fixed payments | Advance repaid from revenue |
| Adds debt? | No — it's a sale | Yes | Yes | Yes |
| Approved on | Customer's credit | Your credit & revenue | Your credit & financials | Your revenue |
| Funding speed | ~1 day (after setup) | Fast | Days–weeks | Fastest |
| Cost | 1–4% per invoice | Moderate | Low (if you qualify) | Highest |
| Best for | Slow-paying B2B invoices | Ongoing cash-flow gaps | A defined one-time purchase | Fast, short-term needs |
Some lenders market a working capital loan as a Merchant Cash Advance (MCA). Structures, rates, and terms vary by provider across Fundur's network.
Factoring fits when…
- You invoice other businesses and wait 30–90 days to get paid
- Your customers have better credit than your own business does
- You need cash tied to sales you've already made
- You'd rather not add debt to the balance sheet
Reach for something else when…
- You sell to consumers (B2C) rather than businesses
- You need a general cushion, not cash against invoices — a line of credit fits
- You want the lowest possible cost and can qualify for a bank loan
- You'd prefer your customers never know you use financing
How to set up invoice factoring
Getting started is faster and lighter than a loan application. Through Fundur, one application reaches multiple factoring companies so you can compare advance rates and fees side by side.
Apply & share your receivables
Submit a short application with an accounts-receivable aging report and your customer list. Soft inquiry — no credit impact to check.
Factor reviews your customers
The factor checks your customers' credit and your invoices, then offers an advance rate, fee, and terms.
Set up & notify
Sign the agreement; the factor files a UCC-1 and sends your customers a Notice of Assignment on how to pay.
Fund & repeat
Submit invoices and receive advances — often same-day. Reserves release as customers pay, and the cycle repeats.
Documents commonly required
Every factor is different, but most first applications ask for some combination of these. Having them ready speeds up approval.
- Accounts receivable aging report — your outstanding invoices by age
- Customer list — who you invoice and on what terms
- Sample invoices & backup — proof of delivery, rate confirmations, or PODs
- Business formation documents — articles, EIN, and ownership
- Recent bank statements — sometimes requested to verify operations
- Photo ID & a validity guarantee — warranting the invoices are genuine
Compare factoring companies with one application
Advance rates and fees vary widely between factors for the exact same invoices. Fundur helps you find the strongest offer without applying to each factoring company separately.
Invoice factoring FAQs
Is invoice factoring a loan?+
No. With factoring you sell your unpaid invoices to a factoring company rather than borrowing against them, so it doesn't add debt to your balance sheet. Borrowing against invoices is a different product — invoice financing — which is a loan. Because factoring is a sale, approval depends mostly on your customers' credit rather than your own.
How much does invoice factoring cost?+
The main cost is the factoring fee (or discount rate), commonly about 1%–4% of the invoice per 30 days it stays unpaid. Your rate depends on your customers' credit, monthly volume, invoice size, how fast customers pay, your industry, and whether the deal is recourse or non-recourse. Watch for extras like wire fees or monthly minimums, and always ask for the all-in cost.
What is an advance rate?+
The advance rate is the percentage of an invoice's value the factor pays you upfront — commonly 80–90% for general B2B invoices, and higher (into the mid-90s) for freight. The rest is held in reserve and released to you, minus the fee, once your customer pays. The advance rate is cash you receive, not a cost.
What's the difference between recourse and non-recourse factoring?+
With recourse factoring (the most common, lowest-cost option), you're responsible for buying back an invoice your customer doesn't pay. With non-recourse factoring, the factor absorbs the loss — but usually only if your customer becomes insolvent or bankrupt, not for slow payment or disputes. Non-recourse costs more and has stricter customer-credit requirements.
Will my customers know I'm factoring?+
Usually, yes. Most factoring is "notification" factoring: the factor sends your customers a Notice of Assignment telling them to pay the factor, and may verify invoices with them. This is routine in industries like trucking and staffing. Some larger, well-established businesses qualify for non-notification factoring, where customers aren't told.
How fast can I get funded?+
Initial setup — application, customer credit checks, and paperwork — typically takes a few days to a couple of weeks. After that, advances on new invoices are often funded the same day or within 24 hours. Factoring is one of the fastest ways to convert completed work into cash.
Do I have to factor all of my invoices?+
It depends on the agreement. Spot factoring lets you factor a single invoice with no long-term commitment. Whole-ledger or contract facilities may require you to factor most or all invoices, sometimes with monthly minimums. Some factors let you select specific customers. Check the contract for minimums, term length, and notice-to-cancel provisions.
What types of businesses use factoring?+
Any B2B or B2G business that invoices creditworthy customers on terms and waits to get paid. It's especially common in trucking and freight, staffing, manufacturing, wholesale and distribution, oilfield services, janitorial and facilities, government contracting, construction services, and B2B consulting. Businesses that sell to consumers (B2C) generally can't factor.
Does my credit score matter for factoring?+
Far less than for a loan. Because the factor is buying your invoices, it weighs your customers' credit and payment history most heavily. That's why newer businesses and those with weaker credit can often factor — as long as they invoice reputable, bill-paying customers. Most factors still ask for a validity guarantee confirming the invoices are genuine.
What's the difference between invoice factoring and invoice financing?+
With factoring you sell the invoice and the factor collects from your customer, who is usually notified; it isn't debt. With invoice financing (also called accounts receivable financing), you borrow against the invoice, keep collecting from your customer yourself, and it's a loan that appears as debt. Factoring hands off collections; financing keeps them with you. See the full comparison above.
Is Fundur a factoring company?+
No. Fundur is a financing marketplace, not a factoring company or lender. We help you compare factoring companies in our network with a single application; the factor you choose buys your invoices, sets your advance rate and fee, and funds you. Checking your options through Fundur is a soft inquiry and won't affect your credit.
Turn your invoices into working capital
Compare factoring companies in Fundur's network with one application, see your real advance rate and fee — not a national average — and move forward with the offer that fits. Checking won't affect your credit.