Invoice factoring
Invoice factoring advances cash against your outstanding commercial invoices, so you aren’t waiting 30, 60 or 90 days to be paid. Approval leans on your customers’ payment history as much as your own.
Key points
- Factoring turns unpaid invoices into cash now, instead of waiting 30 to 90 days.
- A factoring company advances most of the invoice value up front, and the rest, minus a fee, when your customer pays.
- Approval depends mostly on your customers’ ability to pay, not just your own credit.
- Fees are a percentage of the invoice, so compare the total cost carefully.
What is invoice factoring?
Factoring is the sale of your unpaid invoices to a factoring company, called a factor. The factor pays you most of the invoice value right away, collects payment from your customer on their normal terms, then sends you the remaining balance, minus its fee.
It isn’t a loan, so there’s no debt on your balance sheet. And because the factor is relying on your customer to pay, a business with a short history but strong customers can often qualify.
How it works, step by step
| Step | What happens |
|---|---|
| 1 | You deliver the work and send the invoice |
| 2 | The factor advances most of the invoice, often within a day or two |
| 3 | Your customer pays the factor on their usual terms |
| 4 | The factor sends you the balance, minus its fee |
An example with real numbers
You invoice a customer $50,000 on 60-day terms. The factor advances 85% today and charges a 3% fee.
Types of factoring
| Type | How it works | Trade-off |
|---|---|---|
| Recourse | You cover the loss if your customer doesn’t pay | Lower fees |
| Non-recourse | The factor takes on some of the non-payment risk | Higher fees, stricter approval |
| Spot factoring | Factor single invoices when you need to | Flexible, often a higher rate |
| Whole ledger | Factor all your invoices on an ongoing basis | Lower rate, longer commitment |
How NorthMerit can help
Apply once and we’ll connect you with one financing partner who works with businesses like yours. It’s free, and there’s no obligation.
When factoring makes sense
Factoring fits businesses with good customers who pay slowly. Transportation, staffing, manufacturing, wholesale and construction subcontractors use it most. It’s especially useful when you’re growing faster than your cash flow, because the financing grows with your sales.
It’s less useful if your margins are thin, or if your customers often pay late, since fees can climb the longer an invoice is outstanding.
Common questions
Will my customers know?
Does my credit matter?
Industries that use it.
Construction and trades
Contractors carry equipment costs and wait on progress payments. Financing that matches project timing keeps crews working.
Learn moreTransportation and logistics
Carriers and logistics firms run on trucks, fuel and receivables that pay in 30 to 90 days.
Learn moreWholesale and distribution
Distributors buy inventory up front and get paid later. Working capital closes that gap.
Learn moreE-commerce
Online brands pay for inventory and advertising well before the sales come in.
Learn moreEnergy and natural resources
Oilfield services, forestry and mining suppliers run heavy equipment and wait on large customer invoices.
Learn moreThe right financing, from the right partner.
Apply once. One financing partner who knows businesses like yours. Free, with no obligation.
