Invoice Factoring

Invoice factoring involves selling eligible accounts receivable to a factoring provider. The Office of the Comptroller of the Currency describes factoring as an outright purchase of receivables, with or without recourse. [1] It is different from borrowing against your business’s future sales.

The provider may advance part of an accepted invoice’s value, collect from the customer, and release any remaining balance after agreed fees and adjustments. Confirm the advance, reserve, collection process, and settlement conditions in your offer.

Factoring can be relevant when you have completed work for business customers and issued invoices with payment terms. Suppliers, service businesses, and other companies with receivables may want to explore whether their invoices qualify. Unbilled work or disputed invoices require a different discussion.

Imagine a business that has delivered an order but must wait for its customer’s payment while payroll comes due. Factoring may bridge that timing gap, but the fees still need to fit the profit on the underlying work. Compare the arrangement with waiting for payment, negotiating a deposit, or other funding options.

Ask how the fee is calculated, whether it increases with time outstanding, and whether there are setup, minimum-volume, collection, or termination charges. Compare the cash available immediately with the amount ultimately retained after all charges.

Understand recourse: who bears the loss if the customer does not pay, and under which circumstances must you repurchase an invoice? Even a nonrecourse offer may exclude disputes or particular types of nonpayment. Ask for those boundaries in writing and clarify what your customer will be told.

Bring your invoice list and accounts receivable aging report, customer details, payment terms, and evidence that the goods or services were delivered. Have recent bank statements, company information, and any existing liens or financing agreements ready for review.

Eligibility can depend on invoice validity, customer credit quality, payment history, existing claims on receivables, and the provider’s requirements. We can help you explore the next step, but an invoice’s face value is not a promise of the amount available or of approval.