Invoice Factoring Explained: Get Paid Before Your Client Pays
Invoice factoring lets you sell unpaid invoices to a factoring company for immediate cash — typically 80–95% of invoice value upfront.
How Invoice Factoring Works
- You complete work and invoice client
- You sell invoice to factoring company
- Factor advances 80–95% within 24–48 hours
- Client pays factor directly
- Factor remits remaining balance minus fees
Factoring Costs
Factors charge 1–5% per month depending on invoice size, client creditworthiness, and volume. Effective APR can be high — use for cash flow emergencies, not routine billing.
Factoring vs Invoice Financing
Factoring: You sell the invoice; factor collects from client.
Invoice financing: You borrow against invoice as collateral; you still collect from client.
When Factoring Makes Sense
- Rapid growth outpacing cash flow
- Net 60/90 clients with reliable payment
- Seasonal businesses with long payment cycles
Better First Step: Improve Invoicing
Before factoring, optimize your invoicing: shorter terms, faster sending, better follow-up. Create and send invoices instantly to reduce payment delays.