Waiting for your customers to pay their invoices can cause some trouble. While you’re waiting for payment, you may find it difficult to pay rent and utilities, meet payroll, or purchase more inventory. Instead of waiting, you can turn your unpaid invoices into working capital right away with invoice factoring.

How It Works

Invoice factoring is different than a traditional business loan. Rather than receive a lump sum of money that you need to repay in installments, you get an advance on money that’s already yours (your customers just haven’t paid you yet).

You don’t need perfect credit to qualify. Instead, the company that buys your invoices (the factor) cares more about the creditworthiness of your customers. There’s typically less paperwork involved and you don’t have to worry about collateral.

How It’s Different from Invoice Financing

With invoice financing, you receive an advance on your unpaid invoices, but you’re still responsible for collecting the payments from your customers. You receive the total value up front and must repay in installments, regardless of whether or not your customers pay you.

With factoring, the factor advances you up to 90% of the total value and assumes responsibility for collecting payments. Once your customers have paid the factor, you receive the remaining amount minus applicable fees.

Pros and Cons


  • Easier approval process. Your customers’ creditworthiness matters more than yours when determining eligibility.
  • Fast cash. You get your money almost immediately to cover a funding gap due to slow-paying customers.
  • No collateral. Funding is unsecured, meaning that you don’t need to offer up any business or personal assets.
  • Boost your cash flow. You can keep loyal customers on longer terms, while still getting the money you need to keep your business running.


  • Bad customer credit can hurt you. If your customers have a history of late or missed payments, you may not get approved.
  • It may be expensive. The factor fee (a percentage of the total value of the invoices you’re factoring), you may also have other hidden charges. You may also have processing fees, credit check fees, or late fees.
  • No guarantee if your customer doesn’t pay. If your customer doesn’t pay their invoice, the factor may require you to buy it back. Or, you may need to replace it with one of equal or greater value.

You shouldn’t have to stress while waiting for your customers to pay their invoices. Selling them to a factor can help you to get the money you need to run and grow your business now.