More than 82% of small businesses that fail cite cash flow problems as the primary reason. If your business is waiting weeks or months for customers to pay invoices, invoice factoring can help improve cash flow and prevent financial strain.
Research shows the average B2B payment cycle is 30–90 days, depending on industry — which can create serious cash flow strain for small businesses. Invoice factoring allows you to unlock working capital tied up in outstanding invoices instead of waiting months for customers to pay.
One proven solution gaining popularity in 2025 is invoice factoring, a fast and flexible way for small businesses to unlock working capital tied up in outstanding invoices. Instead of waiting for customers to pay, you can convert invoices into immediate cash to fund payroll, operating expenses, equipment, and growth.
This guide explains what invoice factoring is, how it works, and why it may be the smartest funding option for small businesses needing faster access to capital.
Access fast working capital through invoice factoring — often within 24–48 hours.
Apply online now to see your options.
What Is Invoice Factoring?
Invoice factoring, also known as accounts receivable financing, is a type of business funding where a company sells its unpaid customer invoices to a factoring company at a discount in exchange for fast working capital.
According to the invoice factoring industry, demand continues to grow as businesses look for faster alternatives to traditional bank loans.
Instead of waiting 30–90+ days for customers to pay, invoice factoring allows you to unlock 80%–95% of the invoice value upfront through wire or ACH deposit. The remaining balance — minus a small factoring fee — is paid once your customer completes payment.
Unlike traditional bank loans, invoice factoring:
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Does not require collateral
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Does not require strong credit
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Is not a loan — you are selling your receivables
During the funding period, the factoring company manages invoice collection and payment processing, allowing you to focus on daily operations, payroll, and growth instead of chasing late payments.
Industries that commonly use invoice factoring
Trucking & transportation • Staffing agencies • Security guard services • Manufacturing • Construction • Medical supply • Import/export • Distribution • Wholesale companies
How Does Invoice Factoring Work?
The invoice financing process is simple. Here’s a step-by-step breakdown of how invoice funding works for small businesses:
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Apply and submit business information
Complete a short application and provide details about your company and the invoices you want to factor. -
Review of customer payment reliability
Factoring companies evaluate the creditworthiness of your customers, not your business credit score. -
Approval and advance
Once approved, you receive 80%–95% of the invoice value within 24–48 hours. -
Customer payment
The factoring company collects payment directly from your customer. -
Remaining balance released
After your customer pays, the remaining balance — minus fees — is released to you.
In summary: Invoice financing gives you fast access to working capital without taking on debt or waiting weeks for customers to pay.
Recourse vs. Non-Recourse Factoring
There are two primary types of invoice factoring agreements:
Recourse Factoring
In a recourse arrangement, your business is responsible for repaying the factoring company if a customer fails to pay their invoice. This option typically has lower fees and higher advance rates because the risk stays with you.
Non-Recourse Factoring
With non-recourse factoring, the funding company assumes the risk if the end customer does not pay due to a qualifying event such as bankruptcy or insolvency. Because the factoring company takes on more risk, fees may be higher and rules for which invoices qualify may apply.
Tip: Always review the factoring agreement to understand fees, advance percentages, reserve requirements, chargebacks, and recourse rules.
Benefits of Invoice Financing for Small Businesses
Invoice funding provides multiple advantages for companies experiencing cash-flow delays due to slow-paying customers:
Fast Access to Cash
Receive funds within 24–48 hours, improving cash flow and enabling you to manage daily operations without waiting 30–90+ days for payment.
Easier Approval Than Traditional Loans
For companies with limited credit history or no available collateral, a business line of credit or invoice factoring can provide flexible access to funds.
Helps Maintain Strong Customer Relationships
Allows businesses to offer longer payment terms without creating cash-flow strain.
Supports Growth
Use funds to cover payroll, hire employees, purchase equipment, fuel expansion, or handle seasonal fluctuations.
Tips for Applying for Invoice Factoring
Before choosing an invoice financing company, keep these important steps in mind:
1. Confirm Your Eligibility
Ensure your business has issued invoices for completed work or delivered goods. Most factoring companies require proof of delivery and valid invoices.
2. Evaluate Customer Credit Strength
Since approval is based on your customers’ creditworthiness, choose invoices from reliable customers with a strong payment history. Better customer credit often means higher advance rates and lower fees.
3. Choose the Right Invoice Funding Partner
Compare factoring companies carefully and look for:
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Reputation and experience in your industry
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Advance rates and discount fees
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Contract length and termination rules
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Customer support and communication
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Online reviews and references
4. Review the Factoring Agreement Thoroughly
Read all terms carefully — including recourse rules, reserve percentages, additional fees, and collection processes — to confirm you understand your responsibilities before signing.
Is Invoice Funding Right for Your Business?
If your customers pay reliably but take 30–90+ days to pay invoices, invoice factoring may be the ideal solution to improve cash flow without adding debt. Instead of waiting weeks for payment, you can access working capital immediately — helping your business stay competitive and financially stable.
With recourse factoring, you’re responsible if customers do not pay. With non-recourse factoring, the funding company assumes payment risk in situations like customer bankruptcy.
Learn more about our invoice factoring options on our Business Funding page.
Invoice Factoring FAQs
What is invoice factoring?
Invoice factoring is a financial solution that allows businesses to convert unpaid invoices into fast working capital by selling them to a factoring company at a discount.
How fast can a business receive funding?
Many approvals occur within 24 hours, and advances are often funded within 24–48 hours after submitting invoices.
Do I need strong credit to qualify for invoice financing?
Not necessarily. Approval is based primarily on the credit reliability of your customers, not your business credit score.
Will my customers know I’m using invoice factoring?
Yes. The factoring company collects payment directly from your customers, but reputable partners communicate professionally to protect relationships.
What types of businesses benefit from invoice factoring?
Industries with long payment cycles—including trucking, staffing, construction, security guard services, distribution, import/export, and medical supply—commonly use factoring to stabilize cash flow.
Ready to Improve Cash Flow and Grow Your Business?
If you're struggling with slow-paying customers or need working capital to cover payroll, fuel, equipment, or expansion, invoice factoring may help.
Apply today to explore funding options and see how much you qualify for.
Approvals are fast, and funding can happen in as little as 24 hours.