Invoice factoring converts your outstanding B2B invoices into immediate cash — without waiting 30, 60, or 90 days for customers to pay. A factoring company advances 70–90% of the invoice value upfront, then collects from your customer directly. When the customer pays, you receive the remaining balance minus the factoring fee. No new debt, no monthly loan payments.
How Invoice Factoring for Small Businesses Work
Factoring is not a loan — it’s the sale of your receivables at a discount. You transfer ownership of the invoice to the factor, who takes on collection responsibility. This distinction matters for your balance sheet and for lenders who might view traditional loans as diluting your debt capacity.
Recourse vs. non-recourse factoring: with recourse factoring, you’re responsible if your customer doesn’t pay the invoice (the factor can ‘recourse’ the advance back to you). Non-recourse factoring shifts the credit risk to the factor — if your customer goes bankrupt, the factor absorbs the loss. Non-recourse is more expensive but protects you from bad-debt risk.
Factoring approval depends primarily on your customers’ creditworthiness, not yours. A small contractor with marginal credit can factor invoices from a Fortune 500 company or government entity at excellent terms — because the factor is evaluating the payer, not the contractor.
Rates, Amounts & Terms
| Product Feature | Details |
|---|---|
| Advance Rate | 70% – 90% of invoice face value |
| Factoring Fee | 1% – 5% per 30-day period on invoice value |
| APR Equivalent | 15% – 60%+ depending on customer payment speed |
| Facility Size | $10,000 – $5,000,000+ |
| Industries | Construction, trucking, staffing, manufacturing, government contractors |
| Speed | 1–3 business days to initial funding |
Rates shown are typical market ranges. Actual rates vary by lender, creditworthiness, and business profile. Verify with lenders before applying.
Typical Qualification Requirements
| Requirement | Typical Minimum |
|---|---|
| Time in Business | 6 months |
| Credit Score | 550+ (your score matters less; customer credit is primary) |
| Invoice Type | B2B or B2G (not B2C) with verifiable terms |
| Customer Creditworthiness | Primary underwriting factor |
Best For
- B2B businesses with 30–90 day payment terms
- Construction subcontractors
- Trucking companies with freight broker invoices
- Staffing agencies
- Government contractors
Not the Right Fit When
- B2C businesses (retail, restaurants) — invoices don’t exist
- Businesses where all customers pay immediately
How to Apply
- Review the qualification requirements above. Confirm your time in business, monthly revenue, and credit score meet the minimums before applying.
- Prepare documents. Typically: 3–6 months bank statements, most recent tax returns (business and personal), and your business license. Some lenders require additional documents; the list is shorter for fast-funding products.
- Apply through our partner. Submit your information once, receive competing offers, and compare total repayment amount, APR, and payment structure before accepting.
Frequently Asked Questions
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Related: Working Capital Loans • Business Line Of Credit • Construction • Transportation Trucking • Subcontracting
Written by the SBLT Editorial Team. This content is informational only and does not constitute financial or legal advice.
Advertising Disclosure: Small Business Loans Today receives compensation when you click links to our partner financing site. Rates and terms shown are typical market ranges — verify with lenders before making financial decisions. Not financial advice.
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