Receivables financing
Invoice Factoring to Turn Unpaid Invoices Into Working Cash
If your business customers pay on 30, 60 or 90 day terms, your cash can be tied up in work you have already delivered. Invoice factoring lets you sell those invoices to a factoring company for an advance now, so you can fulfill the next order, meet payroll and keep growing.
Start with a short application and a recent aging report. An advisor explains advance rates, fees and recourse terms before you decide.
- What it is
- A sale of business invoices to a factoring company
- How you are paid
- An advance up front, with the reserve released when your customer pays, minus fees
- Mainly reviewed
- Your customers’ creditworthiness and payment history
- Best suited for
- Businesses that invoice other businesses or government agencies
Advance rates, fees and terms vary by provider, industry and the customers you invoice.
An advance on work you have already done
You deliver products or services and invoice your business customer as usual. A factoring company buys the invoice, advances a percentage of its value and holds the rest as a reserve.
When your customer pays, usually to the factor, the factor releases the reserve minus its fees. Because approval leans heavily on your customers’ ability to pay, factoring can be available to businesses that are growing quickly or have a limited credit history.
Most factoring is notification factoring: your customers are told to pay the factor directly. Agreements are either recourse, where you buy back or replace invoices that go unpaid, or non-recourse, where the factor absorbs certain credit losses under conditions defined in the agreement.
Invoice your customer
Deliver the work and send the invoice as usual.
Sell the invoice
The factor verifies the invoice, advances an agreed percentage and holds the rest in reserve.
Customer pays the factor
Your customer pays on its normal terms, usually to an account the factor controls.
Reserve released
The factor releases the reserve, minus its fees.
How an advance, reserve and fee add up
Enter an invoice amount and example terms to see what you receive up front, what is held back and what comes back when your customer pays.
- 1
Advance when the invoice is purchased
$42,500
- 2
Reserve held until your customer pays
$7,500
- 3
Example fee for 2 fee periods
$2,000
- 4
Reserve released after the fee
$5,500
- Total you receive in this example
- $48,000
- Example cost as a share of the invoice
- 4.0%
- Approximate annualized cost of the advance
- About 38%
Educational example. Not a quote, offer or approval. It assumes the fee is charged for each 30 days, or part of 30 days, until the customer pays, with no other fees. Many providers structure fees differently, and some add service, wire or minimum volume fees. The annualized figure is a simple estimate on the advance; a provider’s disclosed APR may differ.
When invoice factoring may make sense
It may fit when
- You invoice other businesses or government agencies on payment terms.
- Your customers have reliable payment histories.
- Growth is outpacing the cash coming in from receivables.
- You want funding that rises and falls with your sales.
Another option may fit better when
- You sell mostly to consumers or collect payment at the point of sale. Explore working capital
- You want access to funds that is not tied to specific invoices. Explore lines of credit
- Your invoices are progress billings or depend on future work. Many factors will not buy them.
- You want to finance a long-term investment such as equipment. Explore equipment financing
What factoring helps businesses do
Fulfill the next order
Buy materials and inventory for new orders while earlier invoices are outstanding.
Meet payroll
Pay staff on schedule, which matters for staffing and service firms with long payment terms.
Take on larger customers
Accept customers with longer payment terms without stretching your cash.
Smooth out collections
Replace an uneven collection cycle with more predictable timing.
Support government and enterprise contracts
Bridge the wait on large customers that pay on extended terms.
Funding tied to sales
Funding can grow with the invoices you generate rather than a fixed loan amount.
What factors typically review
Factoring decisions focus on your invoices and the customers who owe them. Your business profile still matters.
- Your customers
- The creditworthiness and payment history of the businesses or agencies you invoice.
- Invoice quality
- Invoices for completed work or delivered goods, free of disputes and not already pledged to another lender.
- Concentration
- If one customer makes up most of your receivables, a factor may limit how much it buys from that customer.
- Your business
- Factors review your business, its owners, any tax liens or existing liens, and how billing is handled.
- Industry
- Trucking, staffing, manufacturing, distribution and government contracting commonly use factoring. Some industries are harder to place.
- Existing liens
- A lender with a blanket lien on receivables may need to agree before invoices can be factored.
See what your receivables could do for cash flow.
Share your business details and a recent aging report. An advisor will explain factoring options that may be available, including the advance rate, reserve, fees and recourse terms.
Advance rates, reserves and fees explained
Factoring fees are usually a percentage of the invoice and often grow the longer an invoice stays unpaid. Compare the full fee structure, not only the headline rate.
Terms to know
Advance rate
The percentage of the invoice paid up front. The rest is held as a reserve. Industry training material from the Secured Finance Network describes advance rates commonly between 75 and 95 percent, depending on the industry, your customers and the invoices.
Reserve
The portion held back until your customer pays, released minus fees.
Factoring fee
Often a percentage of the invoice for each period it remains unpaid, such as every 30 days. Some providers use a flat fee or smaller increments.
Recourse
In recourse factoring, you buy back or replace invoices your customer does not pay. Non-recourse factoring shifts certain credit losses to the factor, usually at a higher cost. Coverage is often limited to a customer’s insolvency and generally does not cover disputes over the work or goods.
Notification
Your customers are told to pay the factor. Arrangements where customers are not told are less common.
Minimums and contract term
Some agreements require a minimum volume, a set contract length or a fee to end early.
Other fees
Application, due diligence, wire, service or lockbox fees may apply.
Tradeoffs to weigh
- Factoring can cost more than bank financing, especially when customers pay slowly.
- Your customers will usually know you are factoring and will pay the factor.
- Recourse agreements leave you responsible for unpaid invoices.
- Long contracts and volume minimums can limit flexibility.
- Factors commonly file a UCC financing statement on your receivables, which can affect other financing.
Hypothetical example
One invoice, start to finish
A distributor factors a $50,000 invoice to a creditworthy customer that pays in 45 days. Example terms: an 85 percent advance and a 2 percent fee per 30 days.
- Advance up front
- $42,500
- Reserve held
- $7,500
- Fee for two 30 day periods
- $2,000
- Reserve released after the fee
- $5,500
- Total received
- $48,000
- Approximate annualized cost of the advance
- About 38%
Hypothetical illustration. The annualized figure is a simple estimate; a provider’s disclosed APR may differ. Not an offer or a quote. Actual advance rates, fees and terms vary by provider and invoice.
What happens after you apply
Not sure whether your invoices qualify? Start the application and an advisor will review them with you, or call to talk it through first.
Questions first? Call 619-387-5891Complete the application
Share details about your business, your customers and your typical invoice volume.
Send your documents
Provide a recent accounts receivable aging report, sample invoices and your last four business bank statements.
Review options with an advisor
Correia Financial identifies factors whose programs may fit and explains advance rates, fees, recourse and contract terms.
Factor review and setup
The factor verifies your customers and invoices and sets up the account. Approval and final terms are the factor’s decision.
Submit invoices and receive advances
Once the account is open, you submit invoices and receive advances according to the agreement.
Factoring compared with related options
| Feature | Invoice factoring | Business line of credit | Working capital loan |
|---|---|---|---|
| What it is based on | Specific invoices you sell | A credit limit set by the provider | A lump sum based on your business profile |
| Main approval factor | Your customers’ credit and payment history | Your revenue, credit and time in business | Your revenue and bank activity |
| How it is repaid | Your customer pays the invoice | You repay what you draw | Scheduled payments |
| Customer involvement | Customers usually pay the factor | None | None |
| Best suited for | Business or government receivables on terms | Recurring or uneven needs | A defined short-term need |
General comparison. Features vary by provider and agreement.
Invoice factoring questions
Related financing
Related reading
Is invoice factoring a loan?
Factoring is generally structured as a sale of invoices rather than a loan. Depending on the agreement, particularly recourse terms, it may be accounted for as a secured borrowing. Review the agreement with your accountant.
Will my customers know I am factoring?
Usually, yes. Most factoring is notification factoring, where customers are instructed to pay the factor. Arrangements where customers are not told exist but are less common.
What is the difference between recourse and non-recourse factoring?
With recourse factoring, you buy back or replace invoices your customer does not pay. With non-recourse factoring, the factor absorbs certain losses from a customer’s inability to pay, under conditions defined in the agreement, usually for a higher fee.
What invoices can be factored?
Usually invoices to creditworthy businesses or government agencies for completed work or delivered goods, without disputes or other liens. Consumer invoices and progress billings are generally harder to factor.
How much does factoring cost?
It depends on the advance rate, fee structure, how long customers take to pay, your invoice volume and any other fees. Ask for every fee in writing and compare the total cost over a typical payment cycle.
Does my credit matter?
Your customers’ credit carries the most weight, but factors still review your business, its owners and any tax liens or existing liens on receivables.
What is spot factoring?
Spot factoring means selling a single invoice or a small group of invoices instead of entering an ongoing agreement. It offers flexibility, sometimes at a higher cost per invoice.
Learn before you apply
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Get Paid for the Work You’ve Already Done.
Whether you’re fulfilling a large order, meeting payroll or taking on customers with longer payment terms, start by exploring how your receivables could support cash flow. Share your business details so Correia Financial can review potentially available options and explain advance rates, fees and recourse terms.
Complete the application and provide your last four business bank statements and an accounts receivable aging report for an initial review. Additional documents may be required.
Correia Solutions LLC dba Correia Financial is a business financing brokerage, not a lender. Availability and terms depend on each provider's requirements and underwriting. Applying does not guarantee approval or funding.