What invoice factoring is
Invoice factoring is a way to sell your outstanding B2B invoices to a third-party “factor” in exchange for most of the cash up front. Instead of waiting for a customer to pay on net-30/60/90 terms, you get paid quickly and the factor collects from your customer directly.
It’s most common in industries with long payment cycles and reliable business customers — trucking, staffing, manufacturing, wholesale, and professional services.
How the process works, step by step
- You deliver goods or services and invoice your customer as usual.
- You sell the invoice to a factoring company.
- The factor advances a large share of the invoice value up front — commonly in the 80–90% range.
- Your customer pays the factor directly when the invoice comes due.
- The factor releases the rest (the “reserve”) to you, minus its fee.
So if you factor a $10,000 invoice at an 85% advance, you might get $8,500 right away, then the remaining $1,500 minus fees once your customer pays.
What it costs
Factoring is priced as a factor fee (sometimes called a discount rate) rather than a traditional APR. A few things drive the total cost:
- The fee rate charged per period (e.g., per 30 days)
- How long the invoice stays unpaid — longer = more expensive
- Your customers’ creditworthiness and payment history
- Volume — larger, steady volume often earns better pricing
Because the cost grows with time-to-payment, factoring works best when your customers reliably pay within terms.
Recourse vs. non-recourse
- Recourse factoring (most common, cheaper): if your customer never pays, you buy the invoice back or replace it.
- Non-recourse factoring (pricier): the factor absorbs the loss if the customer defaults for covered reasons — but read the fine print on what’s actually covered.
Factoring vs. a line of credit
| Invoice factoring | Line of credit | |
|---|---|---|
| Based on | Your customers’ credit | Your business’s credit/revenue |
| Adds debt? | Usually no (asset sale) | Yes |
| Best for | Slow-paying B2B invoices | Flexible, recurring cash needs |
Pros and cons
Pros
- Fast access to cash tied up in receivables
- Approval leans on your customers’ credit, not just yours
- Scales naturally as your invoicing grows
Cons
- Costs more than traditional bank financing
- The factor may contact your customers to collect
- Best suited to B2B invoices, not consumer sales
When factoring makes sense
Consider it if you’re a B2B business that’s profitable on paper but cash-tight because customers pay slowly, you need predictable cash flow to cover payroll or materials, or your own credit isn’t strong enough for cheaper options yet.
Getting matched
Factoring terms — advance rate, fees, and recourse — vary widely between providers. Tell Hoss Capital about your invoices and customers once, and we’ll match you with factoring companies suited to your industry and volume — free, with no hard credit pull to start.