Quick Biz Capital Blog

Invoice Factoring: Everything Your Business Needs to Know

If your business invoices other businesses and waits 30-90 days for payment, invoice factoring can transform your cash flow. Instead of waiting, you get paid within 24 hours. Here is everything you need to know about how invoice factoring works.

How Invoice Factoring Works

You submit an unpaid invoice to a factoring company. They verify the invoice and advance you 80-90% of the face value within 24 hours. When your customer pays the invoice (in 30, 60, or 90 days), the factoring company sends you the remaining balance minus their fee (typically 1-5% of the invoice value). The entire process happens behind the scenes.

Is Factoring a Loan

No. Invoice factoring is the sale of an asset (your invoice), not a loan. This means it does not add debt to your balance sheet and does not require collateral beyond the invoices themselves. This is an important distinction for businesses looking to maintain a clean balance sheet.

What Factoring Costs

Factoring fees typically range from 1-5% of the invoice value, depending on your customer's creditworthiness, invoice size, and payment terms. A $50,000 invoice with a 3% factoring fee costs $1,500. This may seem expensive, but compared to the cost of late payments, missed opportunities, or emergency borrowing, factoring is often very competitive.

Who Qualifies

The key factor is your customers creditworthiness, not yours. If you invoice reputable businesses with a history of paying on time, you can likely qualify for factoring even with low personal credit. You typically need $20K+ in monthly revenue, 6+ months in business, and B2B invoices with net 30-90 terms.

Best Industries for Factoring

Staffing and temp agencies, construction and contracting, manufacturing, transportation and trucking, IT consulting, wholesale distribution, and government contractors are all heavy users of invoice factoring due to long payment cycles in their industries.