Purchase Order Lending

Financing guide

Small business invoice factoring

Waiting 30 to 90 days to get paid? Invoice factoring can turn outstanding B2B invoices into working capital before your customers pay, so you can cover payroll, restock, and take on new work.

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  • Free to use
  • No obligation
  • Not a lender
  • Our form won’t affect your credit

How invoice factoring works

Invoice factoring, also called accounts receivable factoring, is generally structured as a sale of your unpaid B2B invoices to a factoring company. Every factoring partner has its own terms, but the basic flow is the same.

  1. 01

    You invoice your customer

    You deliver goods or services to a business or government customer and send an invoice on your normal payment terms.

  2. 02

    You sell the invoice to a factoring partner

    Once the partner approves the invoice, it advances a large share of the invoice’s value up front. The partner sets the timing.

  3. 03

    Your customer pays the factor

    Your customer pays the invoice on its usual terms, typically directly to the factoring partner.

  4. 04

    You receive the balance

    Once the invoice is paid, the partner releases the remaining balance to you, minus its fee.

Recourse vs. non-recourse factoring

Recourse factoring

You stay responsible if your customer doesn’t pay: you may have to buy the invoice back or replace it. Because the factor takes less risk, fees are often lower.

Non-recourse factoring

The factor takes on some or all of the risk that your customer can’t pay, usually for a higher fee. Coverage varies, so read exactly which situations the agreement protects you in.

Is it the right fit?

  • You sell to businesses or government agencies on net payment terms
  • Your customers are creditworthy and pay reliably
  • Slow-paying invoices are holding back payroll, inventory, or growth
  • Common in trucking, staffing, manufacturing, distribution, and government contracting

Factoring usually isn’t the right tool for sales to individual consumers, disputed invoices, or invoices already pledged to another financing company.

If the goods aren’t delivered yet, factoring generally isn’t the tool for that stage, but purchase order financing may be. See purchase order financing vs. invoice factoring for how the two compare, and how some businesses use both on the same order.

Invoice factoring requirements: what factoring partners look at

Each factoring partner sets its own requirements, and meeting them doesn’t guarantee approval or funding.

  • Your customers’ credit. Their ability and history of paying on time.
  • Invoice quality. Work that’s been delivered, accepted, and isn’t in dispute.
  • Concentration. Whether most of your invoices go to one customer.
  • Existing liens. Whether another financing company already has a claim on your receivables.

Fees vary by partner, your customers, and how long they take to pay. Ask the partner to set out all of its fees in writing before you sign. See our disclosures for how we’re paid.

Invoice factoring FAQ

Will my customers know I’m factoring?

Often, yes. In most factoring arrangements your customers are told to pay the factor directly. Some funding partners offer arrangements where customers keep paying you, so ask about this if it matters to you.

Is invoice factoring a loan?

Factoring is generally structured as a sale of your invoices to the funding partner rather than a loan. Read the agreement to see exactly how it works, including who bears the risk if a customer doesn’t pay.

Does factoring depend on my credit?

Factoring partners usually focus on the creditworthiness of your customers, since they are the ones paying the invoices. Each partner sets its own requirements and may review your business as well.

How long until I get paid?

Timing depends on the funding partner. Setting up the first time takes longer while the partner reviews your business and customers. Ask the partner what to expect for new invoices after setup.

Other ways to fund your business

Purchase order financing

A funding partner pays your supplier directly so you can fulfill a confirmed order without tying up your own cash.

Built for: signed POsBusinesses holding a signed PO from a creditworthy customer.

Working capital

Flexible short-term funding when you need cash flow but don’t have a specific PO or invoice to finance against.

Built for: general cash flowCovering payroll, inventory, or a gap between paydays.

Tired of waiting on invoices?

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Purchase Order Lending is a free referral service, not a lender. Funding partners may pay us a referral fee when a referral results in funding. Each partner sets its own rates, terms, and approval. This guide is general information, not financial advice.