Frequently Asked Questions
📘 Factoring Basics
What is invoice factoring?
Invoice factoring is a financial service where businesses sell unpaid invoices to a factoring company for quick cash. It’s not a loan—it’s an advance on your accounts receivable.
How does invoice factoring work?
You send your customer an invoice, then sell that invoice to a factor who advances you a percentage up front. Once your customer pays, the rest (minus a fee) is released.
Who uses factoring?
Small to medium-sized businesses in industries like trucking, staffing, and construction often use factoring to stabilize cash flow and grow faster. Large trucking and staffing companies often utilize factoring to keep cash flow consistent.
Is factoring a loan?
No, factoring is not a loan. You’re selling a financial asset (the invoice), so it doesn’t add debt to your balance sheet.
What's the difference between factoring and a loan?
Factoring is the sale of an invoice for immediate cash, while loans involve borrowing money to be repaid with interest. Factoring doesn’t create debt.
How much does factoring cost?
Factoring fees usually range from 0.5% to 5%, depending on the invoice size, your industry, and how long customers take to pay.
How fast can I get paid with factoring?
Most factoring companies pay you within 24 hours after submitting your invoice. Some may offer same-day funding.
💵 Rates, Fees & Structure
How is the factoring fee calculated?
The factoring fee is a percentage of the invoice amount, usually based on how long it will take for your customers to pay. The longer it takes, the higher the fee.
Are there any hidden fees with factoring?
Some factoring companies charge extra fees for setup, credit checks, wire transfers, or early termination. Always ask for a full breakdown of fees before signing a contract.
What is a reserve account?
A reserve is a portion of the invoice (often 5–20%) held back until the customer pays. It’s returned to you once the invoice is settled.
Are there monthly minimums for factoring?
Some factoring companies have monthly minimums, requiring a certain volume of invoices to be factored each month.
What happens if my customer pays late?
In tiered pricing, your factoring dee increases if your customer takes longer to pay. Flat-rate factoring plans avoid this.
Can I cancel my factoring agreement at anytime?
Most factoring companies allow you to cancel with notice, but some contracts may include an early termination fee.
🚀 Getting Started with Factoring
How do I qualify for factoring?
If your business invoices other businesses and your customers have good credit, you likely qualify—even if your own credit isn’t perfect.
What documents do I need to get started with factoring?
Most factoring companies request an application, articles of incorporation, a sample invoice, and a list of customers. The list of documents required can vary based on the company.
How quickly can I get funded?
Once approved, funding is typically same-day or within 24 hours after submitting an invoice.
Can I factor only one invoice?
Yes—some companies offer selective or “spot” factoring, where you only factor the invoices you choose.
Do I need good credit to factor invoices?
No. Factoring is based on your customers’ creditworthiness, not yours, so even businesses with poor credit can qualify.
🔁 Recourse vs. Non-Recourse Factoring
What is recourse factoring?
Recourse factoring means you are responsible for any unpaid invoices. If your customer doesn’t pay, you must buy back the invoice or replace it with a new one.
What is non-recourse factoring?
In non-recourse factoring, the factoring company takes the loss if your customer cannot pay due to credit issues or bankruptcy. It typically costs more, and is only covered if your customer goes bankrupt. If there is a shortpay or dispute, you will have to purchase the invoice back.
Which is better: recourse or non-recourse factoring?
Recourse factoring is cheaper but carries more risk, as you are liable for non-payment. Non-recourse offers protection but usually comes with higher fees. Click here to read our blog that covers this topic.
What happens if my customer doesn’t pay?
In recourse factoring, you must repay the factor if your customer defaults. In non-recourse factoring, the factor absorbs the loss.
Can I switch between recourse and non-recourse factoring?
Some factoring companies allow you to switch between recourse and non-recourse options, but it depends on the agreement.
📦 Industry-Specific Factoring
Is factoring good for trucking companies?
Yes. Freight factoring provides cash after deliveries so truckers can pay for fuel, maintenance, and payroll.
Can staffing agencies use factoring?
Yes—factoring is common in staffing because it helps cover payroll while waiting for client payments.
Can construction companies use factoring?
Yes, but it’s more complex due to retainage and progress billing. Work with a factor familiar with construction.
Can government contractors use factoring?
Yes, but it involves more paperwork and compliance. Many factoring companies work with government contractors.
Can I factor invoices if I’m a broker?
Yes, freight brokers and agents can use factoring to improve cash flow while waiting for client payments. Click here to read our blog on this topic.
🌍 Geographic & Niche Factoring
Can I factor international invoices?
Some factoring companies offer export factoring, but it requires more credit risk analysis and legal considerations.
Is there factoring for oil and gas companies?
Yes, factoring is popular in energy sectors where projects have long payment cycles and high upfront costs.
Can I factor my invoices if my business is seasonal?
Yes—factoring is perfect for businesses with seasonal demand, as it provides capital when you need it most.
Can I factor invoices if I operate in a specific state?
Yes, factoring is available nationwide, but some companies may focus on specific regions or industries.
Are there factoring companies that specialize by industry?
Yes, many factoring companies specialize in specific sectors like trucking, staffing, or construction to better understand their clients’ needs.
⚠️ Risks & Considerations
What are the risks of factoring?
The main risks include customer non-payment (in recourse factoring) and hidden fees. Choosing the right provider reduces these issues.
Will my customers know I’m factoring?
Yes, most factoring arrangements require customer notification so payments are sent directly to the factoring company.
Will factoring hurt my customer relationships?
Not if handled professionally. Reputable factors communicate respectfully and protect your relationships.
Can I be denied factoring?
Yes, if your customers have poor credit or you don’t have sufficient receivables, you may be denied.
Is factoring right for my business?
Factoring is ideal for businesses that want consistent cash flow and have reliable customers. It is a tool that can be used to successfully grow your business, no matter the industry.
Can I stop factoring if I do not want to use it anymore?
Yes, but review your contract—some agreements require a notice period or early termination fee.
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