Invoice factoring: get paid now for work you've already done
Waiting 30, 60 or 90 days for customers to pay while payroll and suppliers are due this week? Factoring turns your unpaid invoices into cash in a day or two, and approval is based mostly on your customers' credit, not yours.
How invoice factoring works
Factoring isn't a loan. You're selling an invoice you've already earned, so there's no new debt on your balance sheet.
- Do the work and invoiceBill your business or government customer as usual.
- Sell the invoiceSubmit it to the factor with proof the work was delivered.
- Get the advanceTypically 70% to 90% of the invoice, often within 24–48 hours.
- Get the rest when they payYour customer pays the factor, and you receive the balance minus the fee.
Businesses that factor invoices
Factoring fits any company that bills other businesses or government agencies on terms. It doesn't work for sales to consumers.
Factoring vs. a line of credit vs. a cash advance
Factoring isn't always the cheapest option. Here's how it stacks up, so you can pick the right tool.
| Invoice factoring | Business line of credit | Merchant cash advance | |
|---|---|---|---|
| Approval based on | Your customers' credit and payment history | Your credit, time in business and financials | Your sales and bank deposits |
| Typical cost | About 1%–5% of the invoice per 30 days outstanding | Usually the lowest, interest only on what you draw | Usually the highest, a fixed factor rate |
| Speed | 3–7 days to set up, then 24–48 hours per invoice | Days to weeks to open | Often 1–3 days |
| New debt? | No, you sell an asset | Yes | No, but daily or weekly payments |
| Best for | Growing B2B companies with slow-paying, creditworthy customers | Established businesses with 2+ years and good credit | Short gaps with a clear payoff when other options don't fit |
What contractors should know before factoring
What you need to apply
- A short application
- An accounts receivable aging report
- Sample invoices and proof of delivery or completed work
- A list of the customers you want to factor
- Driver's license and business formation documents
- Contracts or purchase orders for larger or construction invoices
Know who carries the risk
With recourse factoring, you buy back any invoice your customer doesn't pay. It costs less and is the most common. Non-recourse factoring costs more and usually covers only a customer's insolvency, not disputes over the work. Ask exactly what it covers before you pay for it.
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Invoice factoring: FAQ
What is invoice factoring?
Invoice factoring is selling your unpaid business-to-business invoices to a factoring company. The factor advances most of the invoice amount right away, collects from your customer when the invoice is due, then sends you the balance minus its fee.
How much does factoring cost?
Most factors charge a fee of roughly 1% to 5% of the invoice for each 30 days it stays unpaid. The rate depends on your monthly volume, your customers' credit and how fast they pay. Ask for every fee in writing, including setup, wire and minimum-volume fees.
Do I need good credit to factor invoices?
Your customers' payment history matters more than your credit score, which is why newer and growing businesses often qualify. Tax liens, judgments or an existing bank lien on your receivables may need to be resolved or subordinated first.
Will my customers know I'm factoring?
Usually yes. Your customers are asked to pay the factor directly. It is a routine practice, and most large companies, general contractors and government agencies are used to it.
Can contractors factor progress billings and retainage?
Progress billings can often be factored with a factor that specializes in construction. Retainage is usually not advanced until it is released at the end of the job, so plan your cash flow around it.
How fast can I get funded?
Setting up a new factoring account typically takes about 3 to 7 business days. After that, new invoices are usually funded within 24 to 48 hours of submission.
Turn your invoices into cash
Tell us about your customers and invoices, and we'll show you what you can advance and what it costs.
All financing is subject to approval. Advance rates, fees and terms vary by factor, industry and customer credit. Liberty Capital Group, Inc. · NMLS #2009539 · CA DFPI #60-DBO49692