Invoice FactoringINDEX

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What Is Invoice Factoring? A Plain Explanation

The short version: you sell an unpaid invoice at a discount to get paid now instead of in 30 to 90 days.

By Vlad Ivanov · Updated 2026-07-29 · How we test

Invoice factoring is the sale of your accounts receivable to a third party at a discount. You get most of the money immediately. The buyer — the factor — collects from your customer and keeps a fee for the service and the risk.

A worked example

You invoice a customer $10,000 on net-45 terms. You do not want to wait 45 days.

  • You sell the invoice to a factor at a 3% discount rate with a 90% advance.
  • They advance you $9,000 within a day.
  • Your customer pays the factor $10,000 on day 45.
  • The factor releases the $1,000 reserve minus the $300 fee, so you receive $700.
  • You received $9,700 of a $10,000 invoice, 45 days early. The cost was $300.

Whether $300 is expensive depends entirely on what the 45 days of cash lets you do. For a carrier who can run another load with it, it is cheap. For a business with nothing to deploy it against, it is 3% of revenue given away.

What it is not

  • Not a loan. No debt is created. You sold an asset.
  • Not based on your credit. It is based on your customers'. This is why new businesses qualify.
  • Not invoice financing. That is a loan secured against invoices where you keep collecting. The difference matters →
  • Not confidential by default. Your customer is normally told to pay the factor instead of you.

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What it costs

Discount rates commonly sit in the low single digits per 30 days, but the quoted rate is only part of the cost. Advance rate, recourse terms, monthly minimums and transfer fees all move the real number. The full fee anatomy is here →

Who uses it

Any business that invoices other businesses on terms and needs the cash sooner. In practice the heaviest users are trucking, staffing, construction subcontracting, manufacturing, wholesale distribution and government contracting — industries where long client payment terms sit against short payroll or fuel cycles.

Frequently asked

What is invoice factoring in simple terms?
Selling an unpaid customer invoice to a finance company at a discount, so you receive most of the cash immediately instead of waiting for your customer's payment terms.
What is a typical invoice factoring rate?
Rates are commonly quoted in low single-digit percentages per 30 days, but the advertised rate excludes advance-rate effects, monthly minimums and transfer fees. Compare total cost, not the headline.
Does invoice factoring hurt my credit?
Factoring itself is not debt and is not usually reported as such. Factors do file a UCC-1 against your receivables, which is visible to other lenders and can block a future loan secured on the same assets.