Invoice Factoring

What is invoice factoring?

Invoice factoring (also called accounts receivable factoring) involves selling your unpaid invoices to a factoring company at a discount (typically 70-90% of face value upfront). The factor then collects payment from your customers and pays you the remaining balance minus their fee (1-5% of invoice value). Factoring solves cash flow gaps when you have creditworthy customers but long payment terms.

What is the difference between factoring and invoice discounting?

With factoring, you sell invoices outright and the factor takes over collections — your customers know a third party is involved. With invoice discounting, you use invoices as collateral for a credit line but retain control of collections and customer relationships. Invoice discounting is more confidential and suits businesses with strong collections processes. Factoring is simpler and removes the burden of collections.

Which industries benefit most from invoice financing?

Industries with long payment terms between invoice issuance and payment are ideal candidates: staffing agencies (invoicing clients but paying employees weekly), construction (30-90 day payment terms on contracts), manufacturing, wholesale distribution, trucking and freight, and B2B service businesses. Consumer-facing businesses typically don't use invoice financing since customers pay at point of sale.