04 / Cash flow

Invoice Factoring

Put eligible unpaid invoices to work.

Explore the sale of eligible receivables to access a portion of their value before your customers pay.

Structure: Sale of eligible receivables
Common use: Bridging customer payment terms
Review focus: Invoices and customer credit

Understand the structure

How invoice factoring work.

Invoice factoring lets a business sell eligible outstanding invoices to a factoring company, often called a factor. The factor typically advances a portion of the invoice value and holds the rest as a reserve. Once the customer pays, the remaining reserve is released after agreed fees and adjustments.

The arrangement is commonly used by businesses that invoice other businesses or public-sector customers and must cover expenses before those invoices are collected. A factor reviews the underlying sale, invoice quality, customer credit, and any existing claim on the receivables.

Potential benefits

Why businesses explore this path.

Shorten the wait for working capital

Access part of an eligible invoice’s value without waiting through the customer’s entire payment term.

Support delivery of new work

Earlier access to receipts may help fund wages, materials, or other costs for the next order or service period.

Use customer credit in the evaluation

A factor considers the quality of your receivables and the ability of your customers to pay, alongside your business’s own profile.

Gain support with receivables administration

Some arrangements include payment processing and collection services. Clarify how the factor will communicate with your customers.

A typical process

From first review to a funding decision.

01
Review the invoices and customers
Submit the receivables schedule and evidence that the goods or services were delivered and accepted.
02
Agree on eligibility and terms
Review the advance percentage, reserve, fees, customer notification, and recourse provisions.
03
Receive the initial advance
The factor purchases approved invoices and provides the agreed initial portion, subject to verification.
04
Reconcile customer collections
Customer payments are applied to the invoices, and the remaining reserve is settled under the agreement.

Common uses

What it may help support.

Staffing payroll while clients complete payment terms
Supplier or materials costs for a new order
Transportation or service expenses tied to completed work
Working capital for businesses with recurring eligible invoices

What providers may review

What shapes the evaluation.

Invoice age, documentation, and payment history
Customer creditworthiness and concentration
Disputes, offsets, credits, and acceptance of the work
Existing liens or assignments affecting the receivables

Prepare for review

Information that may help move the conversation forward.

Requirements vary by provider and transaction. An accurate, complete package helps the review begin with the right context.

An accounts receivable aging report
Sample invoices and relevant customer contracts
Proof of delivery or service acceptance
Business bank statements and existing financing details

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Read before you choose

Benefits depend on the full structure.

Understand recourse

With recourse factoring, your business may need to repurchase or replace an invoice if it is not paid. Nonrecourse protection, when offered, usually covers specified risks rather than every reason a customer might withhold payment.

Review the cost of time

Fees may increase while an invoice remains unpaid. Compare the reserve, minimum volume commitments, extra charges, and termination provisions.

Protect customer relationships

Ask who contacts the customer, where payments go, and how disputes are handled. Confirm that the invoice can be assigned under applicable agreements.

Illustration only

An invoice-to-cash illustration

Assume a $50,000 eligible invoice, an 85% initial advance, and a hypothetical total fee of $1,000 when the invoice is collected.

Invoice value$50,000

Initial advance at 85%$42,500

Reserve before fees$7,500

Hypothetical total fee− $1,000

Remaining reserve paid to the business$6,500

Total proceeds in this illustration are $49,000. Actual advance percentages, fees, timing, and adjustments vary. This is not an offer or a typical-results claim.

Questions, clarified

What to understand before applying.

Is factoring the same as an accounts receivable loan?

No. Factoring generally involves selling receivables, while an accounts receivable loan uses eligible receivables as collateral for borrowing. Review which structure the agreement actually creates.

Will my customers know?

In many arrangements, customers are notified and directed to pay the factor. Ask about the specific notification and collection process before proceeding.

Can overdue or disputed invoices be factored?

They may be ineligible or subject to additional review. A completed, verifiable sale to a customer with a satisfactory payment profile is usually a stronger starting point.

Does nonrecourse mean my business has no responsibility?

No. Coverage is defined by the agreement and may be limited to specific customer credit events. Disputes, fraud, credits, or other exclusions can still create obligations for the business.

Industry insights

Explore this solution in your industry.

Read ten practical guides covering cash flow, potential uses, costs, and tradeoffs.

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ForgePath Capital Partners

A clearer path forward.

ForgePath is a business financing brokerage. It helps qualified businesses explore potential financing options through providers. Rates, fees, terms, eligibility, approval, funding speed, and availability vary.

Rates may start as low as 6% APR for qualified applicants and select financing products. Actual pricing depends on the product and the applicant. Some products use factor rates, fees, or other cost structures rather than APR. No advertised outcome is guaranteed.