Invoice factoring is a financial transaction where businesses sell their outstanding B2B invoices to a third-party "factor" to receive immediate cash, usually 70%–90% upfront. It accelerates cash flow, allowing companies to pay expenses and grow without waiting 30–90 days for client payments. 

www.tabbank.com +3

How It Works

1. Service/Sale: You provide goods or services to a customer and send an invoice.

2. Sell Invoice: You sell that invoice to a factoring company.

3. Advance: The factor advances you a large portion of the invoice amount (e.g., 80-90%) immediately.

4. Collection: The factor collects the full payment from your customer when the invoice is due.

5. Final Payment: The factor pays you the remaining balance, minus a fee. 

   Oracle NetSuite +3

Key Aspects of Invoice Factoring

• Costs: Factoring fees typically range from  to  of the invoice value per month.

• Types:

  • Recourse Factoring: You are responsible for the debt if the customer fails to pay.

  • Non-Recourse Factoring: The factor assumes the risk of non-payment, which usually carries higher fees.

• Approval: Approval is based primarily on the creditworthiness of your customers, not your business credit score.

• Benefits: Instant working capital, no new debt (it is a sale of an asset), and faster growth.

• Drawbacks: Higher costs than traditional loans, potential for reduced customer control, and risk of customer dissatisfaction if not managed well. 

  Paychex +6

Invoice factoring is particularly useful for industries with slow-paying clients, such as manufacturing, staffing, trucking, and consulting