# Invoice factoring

Source: https://businessloanbroker.ai/business-loans/invoice-factoring/
Site: BusinessLoanBroker.ai (powered by Levr)

> Invoice factoring pays you 70% to 90% of an unpaid invoice now, for a fee of 1% to 5% per month, and the factor collects from your customer. Who qualifies.

Invoice factoring means selling your unpaid business invoices to a factoring company. It pays you 70% to 90% of the invoice value within a day or two, collects from your customer, then sends you the rest minus a fee of roughly 1% to 5% per month the invoice was outstanding. Approval rests on your customers' credit, not yours, so it works for new businesses and weak credit. The cost is high if invoices drag on, and your customers will know.

## Key facts
- **Amounts:** 70% to 90% of each invoice; facilities from $10,000 to $10 million a month
- **Typical cost:** 1% to 5% of the invoice per month outstanding, roughly 15% to 60% APR equivalent
- **Terms:** Ongoing; each invoice settles when your customer pays, usually 30 to 90 days
- **Time to fund:** 3 to 10 days to set up, then same day or next day on each invoice
- **Minimums most lenders use:** Business customers with good credit, $10,000 or more a month in invoices, no existing lien on receivables

## What is invoice factoring?

You deliver the work, issue the invoice, and sell it to the factor. The factor advances most of the value, your customer pays the factor directly on the normal due date, and the factor pays you the reserve less its fee. With recourse factoring, the most common type, you buy back any invoice the customer does not pay within 60 to 90 days. Nonrecourse shifts that risk to the factor for a higher fee, usually only for customer insolvency.

It is common in trucking, staffing, manufacturing and government contracting. If you would rather keep collections in house, compare [invoice financing](https://businessloanbroker.ai/business-loans/invoice-financing/).

## Who qualifies for invoice factoring?

The factor underwrites your customers. You need invoices to other businesses or government bodies with reasonable credit, work that is complete and not disputed, and no existing lien on your receivables. Your own credit, time in business and profitability matter far less; a startup with one strong customer can factor.

- Declined most often: consumer invoices, progress billing on unfinished work, customers with poor credit or frequent disputes, and receivables already pledged under another [UCC lien](https://businessloanbroker.ai/glossary/ucc-lien/).
- Construction is hard to factor because of retainage and lien waivers; a few specialists handle it.
- If one customer is 80% of your sales, the factor will cap how much of it they buy.

## What does invoice factoring really cost?

A typical example: you factor a $100,000 invoice at an 85% advance and a 2% fee per 30 days. You receive $85,000 the next day. Your customer pays in 45 days, so the fee is 3%, or $3,000, and the factor sends you the remaining $12,000. Measured as a rate on the $85,000 you used for 45 days, that is roughly 28% APR.

If the customer takes 90 days, the fee doubles to $6,000. Add setup fees, monthly minimums and wire fees, which many factors charge. Our guide to [APR versus factor rate](https://businessloanbroker.ai/guides/apr-vs-factor-rate/) shows how to compare a factoring quote with a loan.

## How do you qualify, and what documents do you need?

Factors ask for an accounts receivable aging report, an accounts payable aging, a customer list with contact details, sample invoices and proof of delivery, your formation documents, and three months of bank statements. Larger facilities add a recent tax return and interim financials. The factor runs credit checks on your customers and searches for existing liens.

Start with our [document checklist](https://businessloanbroker.ai/guides/document-checklist/). The thing that speeds approval most is clean receivables: invoices with purchase order numbers, signed delivery confirmations and customers who pay on predictable schedules. Read [factoring versus invoice financing](https://businessloanbroker.ai/compare/factoring-vs-invoice-financing/) before you commit, since the two look alike and differ in who collects.

## How long does invoice factoring take?

Setting up a facility typically takes three to ten business days: the factor verifies your customers, checks for liens and sends notice of assignment letters telling customers to pay the factor. After that, each invoice is typically funded the same day or the next business day once the factor verifies it.

Verification is the variable. Factors call or email your customer to confirm the invoice is valid, and a slow customer accounts payable department delays your advance. Industries with standard paperwork, such as trucking with signed bills of lading, fund fastest. See [how long business loans take](https://businessloanbroker.ai/guides/how-long-it-takes/) for a comparison.

## When should you choose something else?

Choose [invoice financing](https://businessloanbroker.ai/business-loans/invoice-financing/) if you do not want customers to know, since you keep collecting and repay the lender yourself. Choose a [line of credit](https://businessloanbroker.ai/business-loans/line-of-credit/) if your business qualifies, because at 8% to 15% APR it is far cheaper than factoring for the same cash gap. [Asset based lending](https://businessloanbroker.ai/business-loans/asset-based-lending/) is the step up once receivables pass $1 million or so.

Avoid factoring if your margins are under about 10%. A 3% fee every 45 days on thin margin work can consume most of the profit, and long contracts with monthly minimums are hard to leave.

## How do you apply for invoice factoring?

Apply once on this site with your receivable aging and your application reaches factoring companies that handle your industry, alongside invoice financing and line of credit lenders so you can compare the cost. It is free for your business, and we are paid the same whichever lender you choose. You can also ask your AI assistant to apply through our [MCP server](https://businessloanbroker.ai/agents/); it reads your aging report and statements, fills the application and submits it.

| Option | Advance | Typical cost | Who collects | Best for |
|---|---|---|---|---|
| Invoice factoring | 70% to 90% of invoices | 1% to 5% per month | The factor | New or weak credit businesses with strong customers |
| Invoice financing | 80% to 90% of invoices | 1% to 4% per month | You | Keeping customer relationships private |
| Asset based lending | 80% to 90% of receivables | Prime plus 1% to 5% plus fees | You, with reporting | Larger, established businesses |

## Questions and answers
**Will my customers know I am factoring?**

Yes, with standard factoring. The factor sends a notice of assignment and your customers pay the factor directly. Some factors offer nondisclosed arrangements for established businesses, but most small company facilities are disclosed.

**What is the difference between recourse and nonrecourse factoring?**

With recourse, you must buy back or replace any invoice your customer does not pay, usually after 60 to 90 days. Nonrecourse shifts the loss to the factor, typically only when the customer goes insolvent, and costs about 0.5% to 1% more per month.

**Can I factor just one invoice?**

Sometimes. Spot factoring lets you sell single invoices without an ongoing contract, usually at a higher fee of 3% to 5% per month. Most factors prefer a contract covering all invoices from selected customers for at least six to twelve months.

**Does factoring hurt my credit?**

No. Factoring is a sale of receivables, not a loan, so it does not appear as debt on your credit reports. The factor files a UCC lien on your receivables, which other lenders will see and which can block a bank line until it is released.

## Related
- [Invoice financing](https://businessloanbroker.ai/business-loans/invoice-financing/)
- [Asset based lending](https://businessloanbroker.ai/business-loans/asset-based-lending/)
- [Business lines of credit](https://businessloanbroker.ai/business-loans/line-of-credit/)
- [Invoice factoring versus invoice financing](https://businessloanbroker.ai/compare/factoring-vs-invoice-financing/)
- [Trucking business loans](https://businessloanbroker.ai/industries/trucking/)

## Apply
Apply for the business: https://apply.businessloanbroker.ai/signup?utm_source=direct&utm_medium=organic&utm_content=md-invoice-factoring
MCP server for AI agents: https://mcp.businessloanbroker.ai/mcp (docs: https://businessloanbroker.ai/agents/mcp/)