Invoice financing and factoring: pricing the wait, not the whole business

Financing vs. factoring

What it costs

Fees are usually quoted as a percentage of the invoice per period outstanding, sometimes with a flat processing fee. Illustrative arithmetic: a hypothetical 2%-per-30-days fee on an invoice paid in 60 days is 4% of the invoice. Faster-paying customers make it cheaper; a 90-day payer makes it expensive. Compare the written fee schedule against the written total cost of any alternative sized to the same cash need.

Recourse vs. non-recourse

With recourse, you buy back or replace invoices your customer never pays. With non-recourse, the factor absorbs a customer's credit failure (usually only true insolvency, not disputes) and charges more for it. Read exactly which events are covered.

Who it fits

• Trucking companies waiting on brokers and shippers (trucking guide).
• Staffing agencies running weekly payroll against net-30/60 clients (staffing guide).
• Contractors and subcontractors with progress billing to commercial clients (contractors guide).
• Wholesale, manufacturing, and B2B services with established customers.

It does not fit consumer-facing businesses (restaurants, salons) with no invoices, or businesses whose customers dispute invoices frequently.

Questions to ask a provider

• Advance rate and the fee schedule per period, including any minimum monthly volume.
• Recourse terms and what counts as a customer default.
• Notification: will my customers be told, and how?
• Contract length and termination fees.
• Will you file a UCC-1 lien, and does it conflict with an existing lender?

Common questions