If your customers pay on net-30, net-60, or net-90 terms, you already know the squeeze: the work is done, the invoice is sent, and your cash is locked up for weeks while payroll and suppliers still come due. Invoice factoring exists to close that gap.
It’s one of the oldest forms of business finance — and one of the most misunderstood. Here’s how it actually works.
What factoring is
Factoring is the sale of your unpaid invoices to a funding partner at a small discount. Instead of waiting 60 days, you receive most of the invoice value — typically 80–90% — within a day or two. When your customer pays, you receive the remainder minus a modest fee.
How a typical deal flows
- You deliver the work and invoice your customer as usual
- You send the invoice to your funding partner and receive an advance within ~24 hours
- Your customer pays on their normal terms
- You receive the reserve balance, less the factoring fee
When it makes sense
Factoring shines for B2B businesses with creditworthy customers and long payment terms: staffing firms, freight and trucking, manufacturers, and wholesalers. Because approval leans on your customers’ credit rather than yours, it’s often accessible to younger companies that can’t yet qualify for a traditional loan.
Quick math
Advancing a $200,000 receivables book at 85% puts $170,000 in your account this week instead of two months from now — usually for a fee far smaller than the cost of a missed opportunity.
What to watch for
Read the terms. Understand whether the arrangement is recourse or non-recourse, how fees scale with time-to-payment, and whether there’s a minimum volume. A transparent partner will walk you through every number before you commit.
Key takeaways
- Factoring advances most of an invoice's value within a day or two.
- Approval depends largely on your customers' credit, not just yours.
- It unlocks earned revenue without adding debt.
- Best for B2B firms with long payment terms and solid clients.