The Complete Guide to 7 Invoice Factoring Structures
How Businesses can Choose the Right Type of Factoring for Their Cash-Flow Needs
Invoice factoring isn’t one-size-fits-all. In fact, it’s one of the few forms of finance that lets a business tailor funding to the way it actually operates. Whether you need occasional help, want predictable daily cash flow, credit protection, receivables management or require specialized solutions like non-notification or DIP invoice factoring, there’s a structure designed for you.
This guide breaks down the invoice factoring options available today, how they work, and when they make sense.
1. Selective Invoice Factoring
Selective factoring is perfect for businesses that want flexibility without committing their entire customer base or all receivables. Instead of selling every invoice, you choose which customers and invoices you want to factor.
Why businesses choose selective factoring
- Smooths out cash flow during short-term fluctuations
- Allows you to “dial in” the exact amount of working capital you need
- Let’s you retain full control over other customer relationships
- Ideal when no single customer exceeds 20% of your sales
Selective Invoice Factoring works especially well for:
- Companies with lighter A/R volume
- Businesses with a few larger customers that can make an impact on cash flow
- Firms that only want to fund invoices occasionally
Businesses that want control and flexibility often start here.
2. Full Ledger (Full Turn) Factoring
If you have a larger customer base or high invoice volume, Full Ledger Factoring keeps everything simple. Instead of picking and choosing, you submit all customers and invoices for funding.
When Full Ledger Factoring Makes Sense
- Maximizes your available funding
- Eliminates the administrative hassle of tracking factored vs. non-factored invoices
- Gives factors the volume and diversification they prefer, often leading to:
o Lower discount rates
o Higher advance rates
o Better long-term support
Best fit for
- Businesses with many customers
- A business which needs maximum cash availability
- Rapidly growing companies
- Firms that want a true outsourced A/R management partner
For companies struggling with daily cash and tired of juggling A/R tasks, this structure delivers simplicity and scale.
3. Recourse vs. Non-Recourse Factoring
These two terms cause more confusion than almost anything else in invoice factoring but the concept is straightforward.
Recourse Factoring
You get the cash up-front, but if the customer doesn’t pay for any reason, you’re responsible for buying back the invoice.
- Lower cost
- Faster approvals
- Best when your customers pay reliably
Non-Recourse Factoring
If your customer goes bankrupt or becomes insolvent, the factoring company absorbs the loss, assuming your customer is credit insurable and in a sufficient amount.
- Credit protection
- Can safeguard you from catastrophic losses
- Great for larger or riskier customer relationships (high concentration)
Quick comparison:
- Recourse: cheaper, more common, your responsibility
- Non-recourse: more protection, higher cost, stricter qualification
Choosing between them usually comes down to your customers’ creditworthiness and appetite for risk.
4. Spot & Transactional Factoring
Spot factoring is the “one and done” version of invoice factoring. No long-term commitment, just a single transaction when you need fast cash.
When Spot Factoring Makes Sense
- You need to cover a short-term cash gap
- You’re jumping on a business opportunity
- You want funding but not an ongoing relationship
Typical requirements
- At least $100,000 in invoice value
- Strong, highly creditworthy or insurable customers
- Strict verification (often written)
Because its transactional, discount fees run higher (typically 5–10%), and the underwriting is tighter. But for the right situation, it solves an immediate need.
5. Confidential / Non-Notification Factoring
Some companies want funding, but don’t want anyone to know they’re using a factoring company. That’s where non-notification factoring comes in. It’s the most discreet way to finance receivables.
Why It’s Hard to Qualify
Most factoring companies avoid it because customers normally must be notified of the assignment. When approved, a Non-Notification Rider lays out the terms for keeping everything under the radar.
Two common structures
1. Silent payments
Customers remit to a lockbox under your name and the customer isn’t formally notified.
2. Client-collected payments
You collect payments yourself and remit them to the factor next business day
Who generally qualifies?
- 5+ years in business
- Financial Reporting (must generate a P&L and Balance Sheet)
- Qualified accounting staff
- Clean, accurate billing
- Very low concentration
- Excellent owner credit
- Highly creditworthy debtors
It’s often more expensive and more complex, but for businesses that must maintain discretion, it’s invaluable.
6. DIP (Debtor-in-Possession) Invoice Factoring
DIP Factoring is a specialized tool for companies in or preparing for Chapter 11 bankruptcy. It provides the immediate liquidity needed to stabilize operations during restructuring.
Why DIP Factoring Makes Sense
- Provides cash for payroll, vendors, operations and professional fees,
- Traditional sources of financing disappear
- Can often be structured in 4–7 business days
- Often presented along with other first-day motions
- Supports a smoother reorganization
What factors look for with DIP Factoring
- Minimum of $2M+ in annual sales revenue
- Accurate financials
- Multiple customers (avoids concentration issues)
- Ability to return to positive cash flow
Experienced DIP factors work alongside your attorneys to present and secure approval from the bankruptcy court
7. Ledgered Factoring Line
If your business generates over $5 million in annual revenue and manages a large customer base with consistent daily payments, a Ledgered Factoring Line could be the perfect next step in your funding evolution.
Unlike traditional invoice factoring—where you submit invoices individually for funding a ledgered line functions more like a revolving credit facility. yet it remains a purchase-and-sale relationship. Instead of sending invoices daily, you’ll submit a weekly accounts receivable report showing what’s outstanding and what you’d like to fund. The factoring company then determines your available borrowing base, giving you flexibility and simplicity without the constant paperwork.
Why Businesses Choose Ledgered Factoring
- Simplifies funding with weekly vs. daily reporting
- Offers higher flexibility and autonomy than traditional factoring
- Supports larger companies moving toward bank financing
- Maintains ongoing credit monitoring for stability and transparency
Ledgered lines are a great transition back into a traditional bank line.
How to Choose the Right Invoice Factoring Structure
Every business has different goals. Here’s a quick decision guide to help you choose which invoice factoring solution is the best:
Your Situation | Best Fit |
Want occasional help without commitment | Selective Factoring |
Want maximum funding + outsourced A/R | Full Ledger Factoring |
Want lowest cost | Recourse Factoring |
Want protection against customer bankruptcy | Non-Recourse Factoring |
Need a one-time cash infusion | Spot Factoring |
Need all financing kept private | Non-Notification Factoring |
Filing Chapter 11 or preparing | DIP Factoring |
Transitioning back into bank financing | Ledgered Line |
Marc Marin is a seasoned expert in business financing, author, speaker, and educator with over 20 years of experience helping companies access working capital through factoring and funding solutions. He is known for making complex financial topics clear and actionable for business owners and finance professionals.