What Invoice Factoring Is & How It Works

Invoice factoring is a type of accounts receivable financing that converts invoices due within 90 days into immediate cash for your small business. The factoring company will typically pay out two installments for your invoice: an advance of 80% of your invoice and the remaining 20% (minus fees) after the invoice is paid.

Fundbox, the sponsor of this article, has no minimum credit score required and can actually advance 100% of the value of unpaid invoices. With Fundbox, you get accounts receivable (AR) financing without all the restrictions that go along with invoice factoring. You can get up to $100,000 with rates as low as 0.5% per week. Prequalifying online is easy and you can be funded in as little as one day.

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What Is Invoice Factoring?

Invoice factoring provides short-term capital in exchange for selling and assigning invoices to a factoring company (referred to as a factor). The factor advances you 80% of your invoice value. Once the invoice is paid, the factor pays the remaining 20% (minus fees). Invoice factoring is generally available to businesses that do a lot of business-to-business (B2B) or business-to-government (B2G) invoicing.

Though similar, small business invoice factoring is not the same thing as invoice financing (or accounts receivable financing), although the terms are often used interchangeably. Invoice financing is more streamlined, easier to use, and doesn’t require the assignment of invoices like factoring does. Additionally, an invoice financing company like Fundbox can work with business-to-customer (B2C) invoices.

Invoice factoring is typically a solution for short-term cash flow problems. It is frequently used as a way for businesses to simplify their cash flow conversion. Factoring financing is most often not used for big capital investments.

How Invoice Factoring Works in 5 Steps

With invoice factoring, your account receivables (invoices) due within 90 days are sold to a third party. It’s a quick and easy immediate cash source. You’ll receive an initial advance of approximately 80% of your invoice upfront. Once your customer pays the invoice, you’ll receive the remaining 20% (minus fees).

The five steps in invoice factoring are:

1. Invoice Your Client

Once you have provided products or services to your B2B or B2G customer, you issue an invoice for them to pay you. To qualify for small business invoice factoring, these invoices must be payable within 90 days.

2. Sell & Assign the Invoice to a Factor

Prior to being able to receive factoring financing, you will need to find a factoring company you want to work with and then go through the application process. The factor will determine if you meet the eligibility criteria to receive financing and conduct due diligence on the customers you’re invoicing to see if they are good credit risks.

If the factor decides to approve your business based on that research, you and the factor will sign a financing agreement. The agreement will set an initial maximum dollar amount that you can borrow, which is the maximum factored amount outstanding at any given time.

Once you have a factoring relationship established with a factor, you will sell them all of your outstanding invoices. When you submit an invoice, the factor will review the invoice for eligibility and issue the advance.

3. Factor Issues an Advance on the Invoice

After submitting your invoices, the factor gives you an initial advance based on the agreed upon advance rate. The advance rate is generally around 80% of the value of the factored invoice. The amount of your advance depends on the size of your transaction, your industry, and other risk parameters.

At this point, the factor may also send out a “notice of assignment” to the clients you have chosen to factor, or they may ask you to do so. The notice of assignment states that your company has assigned the factor as the entity to receive future payments for invoices you issue them. All payments will go to a lockbox account (like a designated account for the factored invoices to be paid), which is set up by the factor.

Some industries are more accustomed to invoice factoring than others. Trucking and shipping companies commonly use freight factoring, and staffing companies and recruiting agencies use staffing factoring. In industries where factoring is common, telling a client you’ve assigned their invoice might not be a problem. If factoring isn’t common in your industry, you might benefit from invoice financing, which doesn’t require invoice assignments.

4. Client Pays the Factor

Your client will pay the factor within 90 days according to the terms of the invoice. The factor will typically handle the collection on all the invoices you assign to them. Generally, the factor tries to follow your history of collection techniques, unless the client is past due. This means there is generally no negative impact on your customers.

5. Factor Forwards You the Remaining Balance (Minus Fees)

After receiving payment from your client, the factor will give you the remaining balance of the invoice, called the reserve amount, minus their fees. For example, if your advance rate was 80% with a monthly factor rate of 3%, and your customer repaid within 30 days, the factor would pay you the remaining 17% at this point.

Who Invoice Factoring Is Right For

Invoice factoring is right for businesses needing a consistent cash flow solution and that invoice at least $25,000 per month to B2B or B2G customers. If you choose business factoring, you need to be prepared to bring the factor in as a partner on your accounts receivable management and collections processes. This includes a willingness to give up some customer control, as the factor will likely have contact with your customers.

Sam Johnson, a former small business banker and business consultant who graduated with a B.A. in finance from the University of Washington, said the following about small business factoring:

“Invoice factoring is a powerful tool to help small businesses grow and function more effectively. Not only does the process provide capital, but it frees up time and resources from accounts receivable and collections. The benefits that a small business can realize with additional financial capital and human capital are enormous!”

Invoice Factoring Qualifications

Invoice factoring is a good working capital solution for businesses of many different ages and sizes, as long as your business qualifies and has qualifying invoices. In general, you can qualify for invoice factoring if you have been in business for at least two years, have invoices due within 90 days, and have no serious tax or legal problems.

The typical qualifications for invoice factoring are:

Invoice Factoring Qualifications

Amount You Can Borrow	$25,000 (or more) per month
Time to Qualify	2 to 7 days
Time to Receive Funds	1 to 3 business days
Invoice Qualification Requirements	Payable within 90 days & free of all liens
Time in Business Requirements	At least 2 years of business operations
Other Common Qualifications	Invoice B2B or B2G customers No serious legal or tax problems
Paperwork Requirements	Application with standard personal & business information Accounts receivable aging report Accounts payable aging report Tax returns (personal & business) Corporate paperwork

Qualifying for invoice factoring is easier than qualifying for long-term financing. Generally, if you have B2B or B2G invoices due within 90 days and no recent tax or legal issues, you can qualify for invoice factoring. While credit scores and annual revenues can be significant hurdles for other types of financing, they are less often issues with invoice factoring.

Ben Janin, an experienced former small business banker, said:

“I had a client that was in technology. At one time, they were on the top of the world, and then the rug was suddenly pulled from underneath them to the point that the company was nearly killed off. In this instance, a reputable factoring company was able to meet the demands of the struggling technology supplier. Goods were produced, payroll was met, the lights stayed on. The business leaders took great pride in the company and it was very important to them that they kept their 100-plus team members employed.”

– Ben Janin, former Banker and Sales & Marketing Executive, United Moving & Storage

Most factors care about three primary things:

1. Who you invoice: You must invoice business (B2B) or government (B2G) customers. Your customers must have good credit scores and they must be established businesses. The factor will need to feel comfortable that your customers are likely to pay off your invoice.
2. When invoices are due: The invoices must be due and payable within 90 days and unencumbered by other loans. (For example, you can’t have another short-term loan outstanding where the same invoice is pledged as collateral.)
3. Credit history: Your business should not have a history of serious tax or legal problems.

Some factors will have other requirements for your business, such as a minimum credit score or minimum time in business, but these requirements are usually far less stringent than other lenders. Comparing the qualification requirements of the leading invoice factoring companies can help you decide which factoring company is best for your business.

If your business invoices consumers rather than other businesses or government agencies, you may qualify for invoice financing at Fundbox. Additionally, Fundbox does not have a minimum credit score requirement to qualify, though your credit will be reviewed when you apply. Simply create an account for free, then sync your bookkeeping software.

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Invoice Factoring Rates & Fees

The primary cost associated with factoring financing is the discount rate, which is sometimes referred to as the factor rate. Invoice factoring rates generally range from 0.5% to 5% of the amount of the invoices factored. Additionally, factoring companies may charge other additional fees, such as origination fees or minimum factoring fees. It’s important to be aware of what these fees may be.

Invoice Factoring Rates

Discount Rate	0.5% to 5%
Expected APR	28% to 60%
Advance Rate	0.8
Other Fees	Varies by factor (see potential breakdown below)

The base cost (without additional fees) of an invoice factor depends on two things:

• Discount rate (or factor rate): The discount rate is the primary cost of borrowing money from the factor and is typically charged on a weekly or monthly basis. The industry range is 0.5% to 5% of the invoice value per month. Many factors have a tiered system for their discount rates, so the more you factor in a month, the lower your discount rate is.
• Length of factoring period (time it takes your customer to pay): Discount rates are charged at regular intervals (usually weekly or monthly), so the length of time it takes for the customer to pay your invoice will determine your cost.

Example of Invoice Factoring Costs

Let’s illustrate the terms above with an example. Suppose you factor a $10,000 invoice at an advance rate of 80% and a discount rate of 3% per month. In this case, you would receive $8,000 upfront. If your client makes full payment on the invoice in 30 days, the factor will pay you the remaining $1,700 you are due, bringing the total amount you receive to $9,700. The remaining $300 is kept by the factor.

For example, factoring a $10,000 invoice would look like this:

Other Invoice Factoring Fees to Look Out For

In addition to the discount rate charged on your factored invoices, there are other fees that you may encounter when using business factoring financing. Some factoring companies may charge you origination fees, services fees, collection fees, or an assortment of other fees. It’s important to understand any fees you may be charged as part of your financing package.

Some additional fees you may encounter with invoice factoring include:

• Origination fees: Upfront costs associated with initiating a new factoring relationship and opening your account; these could be up to $1,000.
• Incremental fee: If your discount rate is a flat fee, then you may be charged an incremental fee to increase the total discount paid to the factor as an invoice ages. This fee can range from 0.35% to 1%.
• Service fee or lockbox fee: This is a flat fee that your factor may charge you to keep a lockbox (like a designated account for the factored invoices to be paid) open, to which your customers will pay their invoices. It can range from $50 to $500 per month.
• Collection or overdue fees: Your factor may charge you for their efforts required in collecting past due payments from your customers. Some will even charge you a flat fee for any payment that becomes past due. These fees vary greatly by factor and could be nothing to a few thousand dollars.
• Unused line fee: Charged for the unused portion of a factoring facility for a given month. It is typically stated as a percentage and charged on a monthly basis. It can range from 0.15% to 0.5%.
• Monthly minimum volume fee: In the event you don’t generate a certain level of fees for your factor in a given month, they may charge you a fee up to $1,000.
• Renewal fee: An annual fee applied after every full year the line is open. This could be up to 1% of the factoring facility size.
• ACH transaction fee: A fee of $5 to $30 that is charged for every advance or disbursement issued from the factor to you.
• Wire fee: Charged if you request to receive a wire instead of an ACH, which is the preferred method of payment by most factors. The factor passes on the charge from their bank to you, typically $15 to $50.
• Credit check fees: These are small in comparison to the other fees, but your factor may pass the cost on to you for any credit checks they need on you or your customers.

Any additional fees that may be charged by the factor should be stated in your factoring agreement. Carefully read through the agreement to make sure that you understand what the fees are and when they apply. If you are applying with multiple factors to see which one will offer you the best deal, make sure to compare the fees that each charges as well as the discount rate.

Understand & Compare Invoice Factoring Fees

When deciding on a factoring company, or choosing between multiple factoring companies, it’s crucial to understand all of the costs associated with the financing. Review your contract to determine what fees you may be charged and under what circumstances they will be incurred. If comparing multiple factoring companies, compare not only the advance and discount rates, but also the fees that each factor charges.

Because of the number of different fees that you could be charged, it’s important to:

• Understand the fees: Ask each factor company you are interested in working with for a breakdown of their fees. Having this information will allow you to compare different providers.
• Review the contract: Carefully review your factoring contract (with the assistance of an attorney, if needed) to ensure that you fully understand what you are agreeing to.
• Evaluate your options: Compare different factoring proposals before signing on the dotted line.

Invoice financing companies, like Fundbox, are far more straightforward with their fees. For example, Fundbox charges just 0.5% to 0.7% per week of the value of the invoices you choose to clear. It’s that simple. Opening an account at Fundbox is free, does not require a minimum credit score, and gets you qualified for financing in just a few hours.

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APR vs Total Cost of Capital

If you measure the costs and fees of invoice factoring as APR, it might look a little higher than what you’re used to seeing with more traditional financing solutions. With short-term borrowing, like invoice factoring, the total cost of capital can be a more important measure than the APR. The total cost of capital is the total amount you will repay on each factored invoice.

In general, the typical APRs you can expect with different financing options are:

• Long-term financing: 7% to 15% APR
• Short-term working capital loans: 30% to 120% APR
• Invoice factoring: 28% to 60% APR

Comparing the effective APR of a 0.5% to 1% weekly discount rate for invoice factoring to the APRs of more traditional loans can be slightly misleading. Despite the higher APR, the short repayment period equates to a relatively small cost of capital.

For example, let’s say you factor $10,000 for 30 days with a 1% weekly discount rate. Your total cost to factor would be $400, even though your effective APR would be 52%. However, if you were to borrow the same $10,000 and spread the payments over a five-year repayment term at a 7% APR, the total cost of capital would be $1,881.

How to Choose the Right Invoice Factoring Company

There are a number of aspects to consider when you are selecting a provider for factoring financing. You need to determine the level of customer interaction you are comfortable with the factor having with your customers. Additionally, how quickly you need funding, whether you want recourse or non-recourse financing, and whether you want spot factoring or contract factoring will impact the factoring company you choose.

Some things to consider when shopping for factoring financing are:

Customer Contact With the Factor

One aspect of invoice factoring that intimidates a lot of businesses is the level of contact between the factor and your customers. This worry stems from the fact that your customer will make payments to the factor instead of directly to you. Some small business owners imagine this will result in their hard-earned customer being repeatedly contacted by a company they’ve never heard of and being hassled for payment.

These concerns aren’t completely unfounded, but they are exaggerated. In reality, some factors will want direct communication with your customer to verify invoices, verify the assignment of the invoice, and make payment arrangements. However, this is more common in industries where factoring is more prevalent and preserving customer relationships is a top priority for the factor.

Some factors create an arrangement where the factor has far less (and in some cases, zero) direct communication with your customer. This can be done by opening a new bank account in your business’ name, with control of the account given to the factor. Your customers are notified of the new account information for payment, and if the factor contacts your customer, they simply present themselves as your billing department.

The invoice financing available through Fundbox doesn’t involve any customer contact, which makes it a very discreet option for businesses that are looking for between $100 and $100,000 in working capital.

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Time to Get Funding

Another important consideration is how quickly you can receive funding, and this may matter to you more than anything else if you need cash to make payroll or buy something essential for your business. With factoring financing, you can generally qualify within two to seven days and be funded in one to three business days after that. The exact funding speed will vary by factor.

Invoice financing companies, such as Fundbox, have even faster funding speeds. The application and approval processes are completely electronic, you can receive approval within hours and have funds as soon as the next business day.

Recourse vs Non-recourse Factoring

One of the most important concepts to understand when considering invoice factoring is recourse factoring versus non-recourse factoring. Recourse factoring means that the factor has the right to collect payment from you if your customer doesn’t pay the invoice within a reasonable time after its due date. Non-recourse factoring is when the factor accepts the risk that the customer won’t pay.

Recourse factoring can become problematic if you have already spent the money you received from the factor. This is why you should only factor invoices to customers who reliably pay on time. Fees can continue to accrue until the factor is paid, often creating a new cash flow problem. However, with non-recourse factoring, even if your customer doesn’t pay the invoice on time, your business won’t be on the hook for it.

Some firms advertise non-recourse factoring, but then they list several reasons why an invoice can be exempt from no recourse. Other factors will offer partial recourse agreements. Small businesses should tread cautiously and read their entire contract carefully to make sure what they will and won’t be responsible for if their clients don’t pay the invoice or pay the invoice late.

Spot Factoring vs Contract Factoring

Spot factoring allows you to sell and assign individual invoices to a factor. While this may seem ideal for your business, many invoice factoring companies prefer not to factor in this way. The application process and underwriting aren’t significantly different than if you were to factor all of your invoices.

Contract factoring is far more common than spot factoring, and is the preferred method of factoring for most business factoring providers. Typically, contract factoring requires a minimum monthly invoice volume be factored (usually $10,000 or greater), or requires that every invoice to a specific customer be factored.

Many small businesses have a variety of customers who pay on different terms, and their financing needs may change, making the flexibility of spot factoring a better option. Fundbox lets you choose which invoices to clear and when to clear them. This gives your small business a high degree of flexibility.

Industry Familiarity

Factoring is an area in which industry familiarity matters. The industry you and your customers are in can affect your terms and cost. Some factors specialize in providing financing to specific industries. Conversely, some factors won’t provide financing to certain types of industries. Do your research and find a factor that understands the needs and norms of your industry.

Pros & Cons of Invoice Factoring

Some of the benefits associated with factoring financing include that there is generally no minimum credit score requirement, it’s a fast way to receive cash, and your accounts receivables will be handled by experts. Conversely, the factoring company may have direct contact with your customers, selling your invoices relinquishes a level of control, and factoring can be expensive.

Pros of Invoice Factoring

The pros of invoice factoring include:

• Creditworthiness of your customers is considered: With invoice factoring, your customer’s creditworthiness is more important than yours. This means you’re able to get financing even if you have poor credit.
• You get to work with accounts receivable experts: A potential upside to invoice factoring is the ability to develop relationships with accounts receivable (AR) management experts. Since this is what your invoice factoring company does on a daily basis, it likely has really good accounts receivable management techniques. You get the benefit of their expertise.
• Provides a quick source of cash: Invoice factoring provides a quick source of cash. You can typically get approved within two to seven days and funded in one to three days. There are, however, other fast business loans you could consider. It’s always good to weigh your options.

Cons of Invoice Factoring

The cons of invoice factoring include:

• Factor may communicate with your customers: You can expect your invoice factoring company to contact your customers, and the level of interaction will vary by provider. If your business is in an industry where invoice factoring is common, this may not be a problem. However, it is something to consider as you’re figuring out if factoring is right for you.
• Cost is expensive: With invoice factoring, not only are the interest rates higher than with other types of financing, but there is also the potential for additional fees. It’s important to read your contract closely to make sure you understand the total costs involved with this form of financing.
• Your invoices are sold: A feature of invoice factoring is that you’re selling, or assigning, your invoices to the factoring company. While this gives you an immediate source of cash, you’re also giving up some control. Plus, this process takes longer than with an option such as invoice financing, where you’re simply borrowing against your invoices.

With Fundbox, you get accounts receivable (AR) financing without all the restrictions that go along with invoice factoring. This makes it a great option. You can get up to $100,000 with rates as low as 0.5% per week. Prequalifying online is easy and you can be funded in as little as one day.

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Alternatives to Invoice Factoring

Invoice factoring is a great financing solution for businesses with B2B and B2G invoices due within 90 days. However, it may not be the right solution for every business. The most natural alternative to invoice factoring is invoice financing. Other potential alternatives include a small business line of credit and a small business credit card. We’ll touch on those first, then compare invoice financing with invoice factoring.

Some common alternatives to invoice factoring are:

Small Business Line of Credit

As an alternative to invoice factoring, a small business line of credit (LOC) allows you to make advances against a pre-established credit limit. An advantage to this is you only pay interest on the amount advanced. This is a great alternative to invoice factoring if you’re only looking to bridge a small short-term need and if you have good credit. Some of the best small business lines of credit can even provide you funding in as little as one to two days.

Small Business Credit Card

A final alternative to invoice factoring is a small business credit card, which is another short-term financing option popular among small businesses. A business credit card is a good option for businesses that are very small, want to manage employee expenses, or earn rewards. Some of the best small business credit cards may offer rewards that could truly benefit your business.

Invoice Financing

An alternative to invoice factoring, invoice financing (aka accounts receivable financing or AR financing) is a technology-based financing solution. It gives you a simple way to fix your cash flow problems by advancing payments for your outstanding invoices.

Invoice financing does not require the sale or assignment of invoices, and there is no third party interaction between your provider and your customers. This makes invoice financing faster and easier than traditional invoice factoring.

“Invoice financing is different from invoice factoring in a few important ways. First, invoice financing doesn’t interfere with your client relationships. Most factoring companies will collect directly from their customers’ clients, which can create an awkward dynamic. Also, invoice financing companies will often advance a larger percentage of the invoice value (up to 100%), whereas factoring companies often only give around 85% of the value. Finally, with invoice financing, you can advance as many, or as few, invoices as you want and you’ll only pay fees when you advance. Often factoring companies purchase all of a small business’ accounts receivables, so the business might get saddled with a lot of unnecessary debt.”

– Fundbox CEO, Eyal Shinar

Typically invoice financing has four main steps. You will need to create an account and sync your accounting software, select the invoices you want to finance, funds are advanced to you, and you repay the advance over the repayment term.

The four steps involved with invoice financing are:

If your business is looking for a seamless, fast invoice financing solution, set up an account for free at Fundbox. Sync your accounting software and see if you qualify for financing. With rates as low as 0.5% per week and funding up to $100,000, Fundbox can help you turn unpaid invoices into cash, fast.

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Comparison of Invoice Financing vs Invoice Factoring

While the terms invoice factoring and invoice financing are often used interchangeably, they are different funding options. Invoice financing allows you to finance smaller amounts, advances up to 100% of the invoice value, and does not require third party interaction with your customers. Invoice factoring, on the other hand, offers higher funding amounts, requires that you finance all of your invoices, and often requires third party interaction with your customers.

The differences between invoice financing vs invoice factoring are:

	Invoice Financing (Accounts Receivable Financing)	Invoice Factoring
Amount You Can Borrow	$100 to $100,000	$10,000 to $10 million
Advance Rate	100%	80%
Time to Qualify	Within hours	2 to 7 days
Documentation Required	Online application Allow online connection from financing provider to your accounting software	Application with basic personal & business information Accounts receivable aging report Accounts payable aging report Tax returns (personal & business) Corporate paperwork
Assignment of Invoice?		✔
Does the Factor Contact Your Customers?		✔
Apply for Financing	Visit Fundbox	Find a factor

When Invoice Factoring Is the Right Option

Invoice factoring is right for you if you need a consistent cash flow solution and you invoice B2B or B2G customers. You must be prepared to bring a partner into your business who is going to be working with you on invoice collection for the foreseeable future.

Some of the characteristics that may draw you to invoice factoring include:

• Factoring is a relationship-driven financing option: When working with an invoice factoring company, you and the factor will be in regular contact, typically every week. You’ll work together to factor new invoices, collect outstanding invoices, and make repayment decisions. Your factor can help you simplify your cash flow conversion process.
• Your customer’s creditworthiness is more important than yours: Another aspect of invoice factoring that can be a huge benefit to small business owners is that you’re relying on your customer’s creditworthiness, not your own. So, if your business isn’t in the best credit shape, you can probably still get access to the funds you need.

When Invoice Financing Is the Right Option

Invoice financing is typically right for you if you’re looking for financing to solve a short-term cash flow issue or are looking to generate some short-term growth capital. Invoice financing is typically faster than factoring financing, and allows you to choose which invoices you want to finance. Additionally, there are no hidden fees, and the financing company won’t have any interactions with your customers.

Some of the reasons you may choose invoice financing over invoice factoring include:

• Faster than factoring financing: Invoice financing companies like Fundbox can fund your invoices as soon as one business day. You don’t have to mess with assignment notices because invoice financing is more like a line of credit product in that you are borrowing based on your accounts receivable.
• More flexible than factoring: One of the best things about invoice financing is its flexibility. You can finance specific invoices that match your working capital needs in terms of both dollars and timing.
• Easier than business factoring: Invoice financing is usually easier to qualify for than invoice factoring and the process is faster. With a company like Fundbox, you can apply today and potentially have funds as quickly as tomorrow.
• No hidden fees: With invoice financing, you pay back each invoice within 12 or 24 weeks by paying one weekly payment that covers the cost of the invoice for each week plus a small fee. There are typically no extra fees.
• No third party interaction with your customers: Because you do not assign your invoices to your provider, there is no need for them to contact your customers.

“Invoice financing can be a great solution for businesses looking to grow at a controlled pace. With invoice financing, you’re leveraging your business’ existing cash flow to grow, so there’s less of a risk of overextending your business with too much credit or credit at unfavorable terms. Similarly, invoice financing doesn’t rely on traditional credit underwriting the way a line of credit or term loan would, which makes it a good option for businesses that may have less than stellar credit scores. So if you’re a business looking to grow or manage your cash flow more effectively, invoice financing may often be a smart way to do so.”

– Fundbox CEO, Eyal Shinar

Fundbox can approve your business within hours and help you get funded for your unpaid invoices in as soon as one business day. Their flexibility allows you to pick and choose which invoices you want to finance, and they will never contact your customers.

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Invoice Factoring Frequently Asked Questions (FAQs)

This article has provided a lot of information about invoice factoring. However, as with any lending program, some questions are asked more frequently than others, which we’ve tried to address here. If we haven’t answered your question, feel free to share it with us in the Fit Small Business forum and we’ll provide an answer.

The following are some of the most frequently asked questions about invoice factoring:

Do I have to give up customer control with invoice financing?

With invoice factoring, you typically need to give up some of your customer control to your invoice factoring provider. This is not typically the case with accounts receivable financing. With invoice financing, your relationship with your customers typically remains unchanged. You’ll continue to bill and collect your invoices just like normal.

Does invoice financing work for companies with credit problems?

While most invoice financing companies will take your credit into consideration to some extent, it’s typically less of a concern than with other types of working capital loans. Minimum credit scores can be very low with Fundbox and their competitors. In fact, Fundbox has no minimum credit score requirement.

How do businesses qualify for invoice factoring?

Unlike most short-term financing, which is based on the creditworthiness of your business, qualifying for invoice factoring has little to do with you. Since repayment is based on your customers paying their invoices, the ability of your customers to repay is typically the most important. The creditworthiness of your customers matters more than your credit.

What does a factoring company do if my customers don’t pay their invoices?

What happens in the event your customers don’t pay their invoices depends on the arrangement you’ve made with your invoice factoring company. With non-recourse factoring, the factoring company is responsible if invoices aren’t paid because your customer filed for bankruptcy or is otherwise insolvent. It’s important to read your contract closely to understand your responsibilities.

Will I be required to factor all of my invoices?

The arrangement you’ve made with your invoice factoring company determines if you have to factor all your invoices. With spot factoring, you get to pick and choose the invoices you sell to the factor. Contract factoring, which is more common, requires a minimum monthly volume or sets requirements on which invoices you have to sell.

Bottom Line

Factoring financing can seem more difficult than getting a loan from a bank. However, what makes factoring financing complicated is also what makes it appealing. You can borrow money based on your unpaid customer invoices to meet your immediate cash flow needs. As long as your clients pay in a timely manner, the cost of factoring is more affordable than many other short-term business loan alternatives.

Fundbox offers fast, affordable invoice financing of up to $100,000. With rates as low as 0.5% per week and repayment periods of 12 or 24 weeks, Fundbox makes waiting for invoices to be paid a thing of the past. Opening an account at Fundbox is free. If you’re approved, you can just pick and choose which invoices to clear, with funds transferred as soon as one business day.

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