Invoice Factoring: All You Need to Know

Invoice factoring is one of the oldest forms of financing out there, but it’s far from outdated.

Today, it’s a mainstream funding tool used by tens of thousands of businesses around the world from publicly traded companies, middle-market firms, small businesses and even start-ups.

At the end of the day, every business big or small runs on reliable cash flow. You can show a profit on paper, but if cash isn’t coming in consistently, forecasting gets harder, budgeting gets tighter and meeting critical expenses like payroll can become stressful.

Reliable cash flow isn’t a luxury; it’s a necessity.

That’s where invoice factoring comes in. It simply closes the gap between when you invoice and when you get paid.

Instead of waiting 30, 45, 60 or 90 plus days to get paid, you’re effectively turning your business into something much closer to cash-on-delivery. You invoice; you get paid!

Here’s how it works in plain English: you sell your performing B2B invoices to a factoring company and receive a large percentage of the invoice amount upfront, typically anywhere from 80% to 98%.

When your customer pays the invoice, the factoring company deducts a small discount fee (often 1% to 5%, depending on how long it took to get paid), and the remaining balance called the cash reserve is released back to you.

• • If you want maximum flexibility and be Selective, some factoring companies let you choose specific customers and individual invoices to fund. Theres no need to set up all of your customers or sell all of your invoices.
    
    
  • If you have a large amount of customers and invoices and want maximum availability and minimal internal administration, a Full-Turn facility might make more sense.
    
    
  • If you’ve got a large one-time cash need, some factoring companies will consider a Spot Transaction with no expectation of an ongoing relationship.
    
    
  • If discretion matters because of a sensitive customer relationship, a Confidential Non-notification structure could be the right fit.
    
    
  • If you’re looking to offload credit risk due to non-payment, Non-Recourse factoring might be a solution.
    
    
  • If your contemplating filing Chapter 11 a Debtor-in-Possession (DIP) factoring program may solve immediate day one liquidity challenges.

According to the International Factoring Association’s 2025 Business Profile and Performance Survey which was sent to more than 400 factoring companies across the U.S. and Canada, which received 109 responses, nearly 92% of respondents are non-bank owned.

That’s a pretty telling statistic. It means the vast majority of factoring companies aren’t run by traditional banks, but by independent operators who tend to move faster, think differently, and often understand what it’s like to run a business themselves.

That perspective matters. Many of these firms understand what it’s like to run a company, manage payroll, handle growth, and deal with real-world cash flow pressure. Because they view collateral differently, focusing on the strength of your receivables, they’re often able to make funding decisions quickly and even adjust in real time when circumstances change.

It’s much more of a hands-on, business-to-business relationship not the rigid, policy-driven structure you often see with traditional banks.

When you need flexibility, quick decisions, and a partner who actually listens to what’s happening with your business, working with a non-bank-owned factoring company can make a real difference.