What is Invoice Factoring and How Does it Work?

What is Invoice Factoring?

Invoice factoring (also known as invoice discounting and AR factoring) is a centuries old business finance tool that expedites working capital tied up in customer invoices.

What is Invoice Factoring?

What Is Invoice Factoring

What is Invoice Factoring?

Few forms of business finance have been around as long as factoring, and yet invoice factoring (also known as invoice discounting, A/R factoring, factoring loans, or receivables financing) is not part of the common business lexicon for many business owners and financial officers in the U.S.

Invoice factoring is a centuries-old business financing tool. It originated with bankers providing manufacturers an advance on goods sold and invoiced, so that manufacturers did not have to wait for products to travel to far-away lands where payment would be made before taking on new business.

Today, businesses in many different types of industries use invoice factoring to expedite cash flow. Any organization that invoices customers for payment or waits for promised payments from a distributor or third party seller might benefit by factoring invoices and putting working capital back into growth initiatives right away, instead of waiting weeks or even months for customers to pay.

Among our factoring clients, are:

supply chain financing for manufacturers and distributors
produce and grocery distributors and growers
transportation industry truckers, shippers, logistics, and freight brokers
oil and gas factoring for field and natural gas companies, contractors, and field services
e-commerce vendors that sell through 3rd party sites like Zulily and Amazon
B2B consultants and agencies
staffing factoring for recruitment, staffing, and temporary employment

The idea of invoice factoring might seem complicated, but it’s actually very simple. Accounts receivable are assets since they represent money that will – eventually – flow in to an organization and which they can then reinvest in growing their business. Organizations choose to factor invoices instead of waiting for customers to pay in order to expedite organizational cash flow.

How It Works

How does invoice factoring work?

Factoring works by expediting organizational cash flow. It allows you to unlock the working capital represented in as-yet unpaid customer invoices. Factoring is a financial transaction with three parties: a business, its customers, and a factoring company, or Factor.

In order to expedite cash flow, a business will choose to factor an unpaid receivable invoice in order to receive an immediate advance on the invoice (essentially a factoring business loan), instead of waiting for customers to pay. The factoring lending company then collects payment from the customer weeks (or months) later, in accordance with the customer’s normal terms of payment.

We are a team of invoice finance brokers. This means we don’t factor invoices ourselves, instead, we help you source top invoice factoring services offering:

Free same-day advances on factored invoices
Advances ranging from 90-98% of the face value of an invoice
Factoring fees that usually range from 1-5%
No long term commitments or harsh penalties if you stop factoring receivables
No factoring minimums – factor as many or few invoices as you desire
Niche services like spot invoice factoring and micro factoring

How It Helps

Expediting cash flow by factoring invoices can speed up business growth.

Some businesses that invoice customers on terms wait weeks or even months to receive payment. So while they have assets on the books (the money owed to them via accounts receivables), they can’t actually use that money to grow their business until the invoices have been paid. However, they can sell the invoices and get immediate access this money.

Selling accounts receivable to obtain short term funds is called invoice factoring. Factoring frees up the working capital represented in unpaid customer invoices so it can be used as and when it’s most needed by the organization.

Organizations that factor invoices expedite cash flow. This can be essential for obtaining the working capital needed to fill the next customer’s order, take on bigger customers and larger orders, purchase equipment, expand inventory or services or execute other business growth strategies.

Companies that use accounts receivables financing can use expedited cash flow to take advantage of cash and early-pay discounts from their own suppliers. They save time and money that would otherwise be spent on accounts receivable-related activities. If they choose to do so, we can even generate and send out invoices, leaving them free to spend time doing things to help their organization grow, instead of waiting for and chasing down customer payments.

Finding out whether factoring could help you generate more business and grow faster starts with a free, no-obligation quote. Even if you are already factoring invoices, we would be happy to provide you with a factoring proposal to compare to your current agreement at no cost to you.

Why Work with Us?

We look for reasons to say “Yes!”

We source the best invoice factoring companies, including those offering the most competitive factoring rates who turn around applications and approvals very quickly. They offer a range of options, including full recourse factoring, non-recourse factoring, non-notification factoring, spot factoring, micro factoring, and more.

Add-on and administrative fees jack up the real cost of factoring. The companies we work with offer factoring agreements that are transparent and free from hidden fees, where one low factoring fee is your all-in cost. There are:

In addition, they pride themselves on their personal approach and the care they take with customer relationships. When you’re approved to factor you will be working with a knowledgeable account manager who will provide you with a high level of service day in and day out.

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Industries Served by Invoice Factoring

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Answering the question ‘what is invoice factoring’ involves understanding the types of organizations and industries where factoring is common.

While most business owners in the U.S. are familiar with other types of business financing (such as bank business loans, lines of credit, business credit cards, private investors or angel investors, etc.), factoring finance is not a term many are familiar with outside of the industries where factoring invoices is an every-day practice.

The factoring companies we connect you with have expertise in receivables financing in a variety of industries, such as:

Freight, transportation, logistics, freight broker, and trucking factoring
Temporary employment, recruiting, and staffing agency factoring
Factoring for specialty staffing agencies like nurse staffing, legal staffing, IT staffing and consultants, cybersecurity consultants, and security guard services
Supply chain factoring for manufacturers and distributors and their suppliers (e.g., last-mile delivery services, raw materials suppliers, business services such as printers or office coffee and pantry services, and so on)
Oil gas factoring for oilfield and natural gas utilities, companies and contractors
Factoring for contractors and businesses in other energy and utilities industries (e.g., telecom, cable, and so on)
Traditional textiles and apparel factoring
Factoring for e-commerce vendors who sell through 3^rd party sites like Zulily and Amazon
And more

If you want to find out more about invoice factoring or find out whether it’s an appropriate business financing solution for your organization, fill out our online application.

We will process your application and a top factoring company will reach out to you with a factoring proposal at no cost and no obligation. You could go from approval to your first funding in 24-48 hours!