For slow-paying customers

Invoice factoring

Factoring advances you most of an invoice's value within a day or two of issuing it, and the factor collects from your customer. It is not borrowing — you are selling an asset you already earned. When the problem is genuinely that customers pay slowly, factoring is usually cheaper than an advance because it is priced against work already completed rather than revenue you have not earned yet.

Advance rate: 70 – 90% of invoice value typical
Fee: Charged per invoice, often per 30 days outstanding
Speed: 1 – 2 business days once set up
Best for: B2B and B2G with net-30 to net-90 terms
Credit basis: Your customer's credit, largely
Setup: A few days to establish the facility

How it works

You issue an invoice. You send it to the factor. The factor advances a large percentage of the face value — commonly 70% to 90% — within a day or two. When your customer pays, the factor releases the remainder minus their fee.

One feature makes this structurally different from every other product on this site: the factor is largely underwriting your customer, not you. A young company with excellent customers can factor when it could not get an advance. That is genuinely useful for new businesses with strong B2B clients.

Recourse versus non-recourse

With recourse factoring, if your customer never pays, you buy the invoice back. With non-recourse, the factor absorbs certain credit losses. Non-recourse costs more and the definition of what is actually covered varies considerably. Read that clause carefully — 'non-recourse' does not always mean what it sounds like.

Who it fits — and who it doesn't

Good fit when

B2B or government customers on net-30 or longer terms
The problem is timing, not profitability
Trucking, staffing, cleaning, construction and similar receivable-heavy trades
A young company with strong, creditworthy customers
You need an ongoing solution rather than one lump sum

Wrong tool when

You sell to consumers and get paid at the time of service
Your customers are not creditworthy
You cannot have customers know you are factoring
Very small invoice volume — the setup overhead is not worth it
You need money for equipment or a one-off purchase

The cost, plainly

Priced as a discount fee per invoice, often per 30-day period outstanding. The effective cost depends heavily on how quickly your customers actually pay — the same fee structure is much cheaper against a customer who pays in 25 days than one who takes 75.

Things to check: the advance rate, the fee schedule and how it escalates with age, whether there are minimum volume commitments, how long the contract runs, and what it costs to exit. Long minimum-term contracts with volume minimums are common and are the main way a reasonable-looking rate becomes an expensive relationship.

Rates and terms are set by the funding partner and vary based on your business. Nothing here is an offer of credit.

Businesses that use it

Trucking Construction & Contractors Medical & Dental Cleaning Services Roofing

Straight answers

Will my customers know I am factoring?

With notification factoring, yes — they are instructed to pay the factor. Non-notification arrangements exist but cost more and are less available to small companies. In trucking, staffing and construction, factoring is routine and customers deal with it constantly.

Is factoring cheaper than a merchant cash advance?

For an ongoing receivable gap, usually yes, because you are selling an asset you already earned rather than a share of revenue you have not. The comparison depends on your customers' actual payment speed, which is worth measuring before you decide.

Can I factor only some invoices?

Spot factoring exists but is less common and more expensive. Most facilities want either all invoices or all invoices from specific customers, because the economics depend on volume. Ask about selectivity up front if it matters to you.

What happens if my customer never pays?

With recourse factoring, you buy the invoice back. With non-recourse, the factor absorbs certain defined credit losses — but the definition varies and often excludes disputes over the work itself. Read that clause before you sign; it is where the real difference sits.