Factoring is technically not a loan. A Factor purchases a small business’ Accounts Receivable (in the case of AR factoring) or a specific Purchase Order (in the case of PO factoring) at a discount and gives the business owner an agreed upon percentage of the AR or PO in advance of collection.

Once the factor collects either the AR or the invoice for the Purchase Order, the remaining balance (minus the agreed-upon amount paid to the factor) is paid to the small business owner.

Factors often specialize in specific industries.

Maximum amount:
Up to 85% of Accounts Receivable
1 – 3 months
Fee equal to 10 – 25%
Time to funds:
1 – 2 days

How invoice factoring works

Invoice Factoring, also referred as A/R (accounts receivable) financing, allows the business owner to receive capital in the event you are owed money for services completed.

The lender will purchase the businesses money owed and take a fee when collected.

What factoring is good for?

This type of financing is valuable when a contract for products or services is received, but the business lacks the cash to fulfill on the contract.

Can be a great solution for seasonal businesses.

What are the requirements?

Credit score:
Monthly revenue:
Time in business:

The orderer’s credit rating is key in determining eligibility for the loan, personal credit is not usually examined by the lender when determining approval.

You need to be invoicing credit-worthy businesses for your product or service.

What is the cost of invoice factoring?

The rates are generally lower than what you would receive with a cash advance loan or a daily payment loan or a daily payment loan depending on the strength or the creditor.

There also can be an additional cost per invoice fee.