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The Best Factoring Companies of 2023

Updated Jun 14, 2023
  • Compatible with QuickBooks
  • Advances are available in as little as 24 hours
  • No long-term contracts
  • Compatible with QuickBooks
  • Advances are available in as little as 24 hours
  • No long-term contracts
Best Overall
altLine The Southern Bank Company
  • Offers asset-based lending
  • Rates are based on customer credit
  • Accounts receivable financing available
  • Offers asset-based lending
  • Rates are based on customer credit
  • Accounts receivable financing available
Best for SMBs
American Receivable
  • Works with all types of credit
  • No setup charge
  • Offers nonrecourse factoring
  • Works with all types of credit
  • No setup charge
  • Offers nonrecourse factoring
  • The maximum advance is $100,000
  • Compatible with FreshBooks accounting software
  • No personal guarantee required
  • The maximum advance is $100,000
  • Compatible with FreshBooks accounting software
  • No personal guarantee required
Freight & Trucking Companies
RTS Financial
  • Specializes in factoring for the freight and trucking industry
  • Offers a fuel card program for companies
  • Equipment leasing is available
  • Specializes in factoring for the freight and trucking industry
  • Offers a fuel card program for companies
  • Equipment leasing is available

Table of Contents

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As strange as it may sound, it’s common for a small business to be cash-poor, even if the company is doing well. This is particularly true for startups, whose owners often find themselves staring at a stack of unpaid invoices from clients. Although money is coming, waiting for that influx of cash can put a halt to business, especially when other expenses are due sooner rather than later.

One way to climb out of this hole is to factor your invoices. Factoring is helpful because it puts money in your pocket so you can maintain steady cash flow and avoid problems from the people you owe money to. However, factoring isn’t for everyone; some businesses are better off with a traditional loan. If you’re seeking alternative financing options, check out our recommendations for business loan and financing options.

However, if you are considering factoring, we’ve examined a number of options and selected the services we think are best for various types of businesses. You can learn more about factoring services and our best picks below.

February 2020: A recent Payments Journal study reported that 46% of small businesses say they consistently receive late payments from clients and customers, with more than half of small business owners saying that late payments are negatively affecting cash flow. This data highlights the unique position factoring services are in, providing fast cash to small business owners to close funding gaps caused by late payments.

Find the Right Factoring Service for Your Business

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How We Decided

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How We Decided

Our team spends weeks evaluating dozens of business solutions to identify the best options. To stay current, our research is regularly updated.







Compare Our Best Picks

BDC Ribbon
Our Top Picks for 2023
altLine The Southern Bank Company
American Receivable
RTS Financial
Rating (Out of 10)
Advance rate






Minimum credit score requirement

Personal credit score of 600 or more

Does not use your credit score as a primary consideration

Considers all credit


All credit scores considered

Funding amounts offered

Up to $5M



Up to $100K

$2,500 per truck, per week

Funding time

Within hours

3-7 days

24 hours

Next day

Same day

Scroll Table

Our Reviews

BlueVine: Fastest Factoring Service

  • BlueVine has a minimum credit score requirement of 530, which can be beneficial for businesses with poor credit or no credit history.
  • You choose which invoices you want to factor.
  • To qualify, your business must generate $10,000 per month.


Editor's Rating: 9.6/10

BlueVine is one of the best factoring companies to consider if you need cash in hand fast. However, it has steeper minimum qualifications compared to other factoring services we reviewed, which may limit some small or new businesses from working with them. If you meet the minimum requirements, you can expect to get an advance on your invoices within 24 hours.

BlueVine Rates and Fees

BlueVine’s rates start as low as 0.25% of the advance per week, which is one of the lowest rates we have seen. However, this rate compounds every week the invoice is outstanding, which adds up quickly if your customers regularly pay late.

One advantage of BlueVine is that you can choose which invoices you want to factor. Other companies may require you to factor every invoice through them. Additionally, BlueVine does not require you to sign a long-term contract.

BlueVine provides 85 to 90% of the total invoice value upfront, which isn’t as much as what other factoring companies we reviewed will advance you. (Some factoring services will advance you 95% or even 100% of the invoice upfront.) However, you get the remainder, minus BlueVine’s fee, when the invoice is paid.

For a $15 fee, BlueVine will transfer cash to you the same day you submit an invoice via a wire transfer. Alternatively, you can receive funds in one to two days for free via an ACH transfer.

With this factoring service, you can open a credit line that ranges from $20,000 to $5 million. Smaller businesses may not qualify for a line of credit, but for many medium- to large-size businesses who do qualify, it can be a lifesaver if you have an unexpected expense. BlueVine does not charge prepayment penalties.

Minimum Requirements

BlueVine considers several factors when evaluating your business. In addition to the prequalification criteria below, BlueVine also takes into account your company’s cash flow, financial history and the creditworthiness of your customers.

At a minimum, you must meet the following criteria to factor with BlueVine:

  • Your credit score is 530 or greater.
  • You have been in business for three or more months.
  • Your business generates $10,000 monthly.
  • Your business earns $100,000 annually.
  • Your business serves other businesses (B2B) or the government.

Your customers must also meet certain requirements in order for you to factor their invoices. The minimum requirements are:

  • Your customer is based in the U.S. or English-speaking Canadian provinces.
  • Your customer is a business.

Finally, your invoices also must meet specific minimum requirements, which include:

  • Your services were completed and accepted by the customer.
  • The invoice is $500 or more.
  • The payment term is less than 13 weeks.
  • The due date is at least one week away.

Ease of Application

Applying for a factoring line of credit with BlueVine is fast and easy. The online form takes a few minutes to complete, and asks for basic business details, such as contact information, your tax ID, annual revenue, etc.

Once your personal details are filled out, you can submit your financial documents, such as your most recent bank statements or A/R aging report. Alternatively, you can grant BlueVine access to your bank account and accounting software. With read-only access to your accounts, it will determine your creditworthiness. BlueVine is compatible with QuickBooks, Xero and FreshBooks.

If you connect your accounting software to BlueVine, invoices automatically appear on your BlueVine dashboard, which saves you from manually entering the information, and you can choose which invoices you want to factor. If your business uses QuickBooks, the application process is even faster as most fields are automatically populated for you.

Once you submit your application, BlueVine will respond within 24 hours. Upon approval, BlueVine will help you verify and notify your customers. Initially, BlueVine takes three to five days to provide you cash on a customer’s invoice, but subsequent invoices are funded generally in the same day.

Customer Service and Support

We contacted BlueVine as a potential customer to test and determine the effectiveness of their customer support. Overall, we found their customer representatives to be helpful and knowledgeable.

Customer support isn’t available 24/7, but BlueVine has extended business hours Monday through Friday from 8 a.m. to 8 p.m. (ET). They are also available on Saturdays from 12 p.m. to 4 p.m.


BlueVine is the best factoring service to quickly factor your invoices, but there are some drawbacks you should be aware of.

First, it advances 85 to 90% of an invoice. This is less than what other factoring companies, such as Fundbox, offer that give you a 100% advance.

Second, BlueVine only offers recourse factoring, which means you are liable if your clients don’t pay their invoices. If you work with reputable customers, this shouldn’t be an issue, but one missed payment can set you back and disrupt cash flow for your company.

Finally, if you own a new business that generates less than $10,000 a month, or if you have poor credit, you are not eligible to work with BlueVine.


altLine The Southern Bank Company: Best Factoring Service Overall

altLine The Southern Bank Company
  • altLINE assigns you a loan specialist who advises you on whether factoring is a good option for your business.
  • altLINE offers invoice factoring, A/R financing and asset-based lending.
  • It can take up to seven days to set up your account and receive funding.
Editor's Rating: 9.5/10

For 83 years, altLine The Southern Bank Company, a well-established lender, has provided small businesses with funding. Its alternative lending arm offers various options, including invoice factoring. Unlike most of the factoring services we reviewed, altLINE is backed by an established, reputable bank. That gives this company unprecedented authority in the industry. Because of its minimum qualifications, funding capabilities and strong reputation, altLINE is the best overall factoring service.

For clients, the company offers an advance ranging from $30,000 to $5 million, and it will advance between 80 and 90% of the face value within 24 hours. Its charges start below average at 0.75% but go up to 3.5%. It will vary based on business, industry and needs. altLine doesn’t consider how profitable your company is or how long you’ve been in business.

American Receivable: Best Factoring Service for Small Businesses

American Receivable
  • American Receivable provides factoring for startups.
  • There are no setup, application or termination fees.
  • Businesses can only factor up to $3 million, which is considered a low monthly ceiling.
Editor's Rating: 9.3/10

American Receivable has been in business since 1979. It offers great features, and its eligibility requirements aren’t overly restrictive. For example, there is no commitment minimum. The fast approval time and funding, lack of commitment minimums and stellar customer service make this the best factoring service for small businesses.

American Receivable works with startups and all types of credit. There is no setup fee, application fee or termination fee, making it great for small businesses with limited capital. One of our favorite features of American Receivable is the acceptance of invoices that are up to 120 days overdue. The industry average is between 60 and 90 days. Plus, it’s a non-recourse factoring company, which means if one of your customers neglects to pay, you aren’t required to buy back the invoice.

Fundbox: Best Factoring Service for Startups

  • Fundbox doesn’t charge early payment penalties.
  • The application process is straightforward. Applicants provide their business email address, a phone number and set a password.
  • Fundbox charges 11 fees, including those for origination, monthly minimum volume, renewals, credit checks, ACH transactions and wires.
Editor's Rating: 8.7/10
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Fundbox is the best invoice financing service for startups because it has few minimum requirements and advances 100% of the value of an invoice. This company has simple minimum requirements to use its services and does not consider your personal credit history or the age of your business, which makes it ideal for new business owners.

Fundbox Rates and Fees

One of Fundbox’s best qualities is its transparent pricing. Before it factors a specific invoice, the company shows you the exact fee you will pay for that invoice, so you won’t be caught off guard when you repay the advance.

Fundbox does not dock you with monthly minimum or prepayment penalties, which allows you to repay your advances early. Additionally, if you are able to repay advances ahead of schedule, Fundbox waives your remaining fees. Like most of the best factoring services, Fundbox does not make you sign a lengthy contract.

On a 12-week term, Fundbox fees start at 4.66% of your invoices per week. For a 24-week term, that percentage jumps to 8.99% per week. Unlike most factoring services, Fundbox advances 100% of the value of the invoice. However, you repay the company a prorated portion of the invoice each week, plus a fee.

Minimum Requirements

Fundbox has low minimum requirements that makes it a viable financing option for startups that lack a long credit history or have poor credit. There are four minimum requirements:

  1. Your business must be based in the U.S.
  2. You must have a business checking account.
  3. Your business must earn at least $50,000 per year.
  4. You must use supported accounting software with at least two months of activity and five invoices per month, or have three months of business transactions in a business bank account.

One of Fundbox’s greatest strengths is that it works with all industries, including healthcare, freight and construction. Another positive is that the factoring service doesn’t require collateral or personal guarantees.

Fundbox doesn’t consider the personal credit scores of you or your customers. However, it may conduct background checks on you and the rest of your business’s leadership team when you create an account.

Even with its minimal requirements, Fundbox advances 100% of invoice values, which makes it the best factoring option for startups that are too small to work with most other factoring companies.

Ease of Application

Fundbox’s application process is easy and straightforward. You can quickly create an account without speaking to a customer support representative. All you need is your business email, phone number and a password. When you sign up, you don’t need to provide tax forms, financial statements or other legal documents.

When you are ready, you connect your newly created account with your business’s accounting software. Fundbox currently supports the following accounting software options:

If you don’t use one of these accounting programs, Fundbox can offer you lines of credit.

After you connect Fundbox to your accounting software or business bank account, it analyzes the data to evaluate the legitimacy of your business. You need at least three months of data to factor invoices through Fundbox.

Customer Services and Support

To evaluate Fundbox’s customer service, we called the company posing as a small business owner. We had mixed results, as our calls on Friday afternoons routinely went to voicemail. Our calls on Monday mornings were more successful, as we reached a representative right away.

Although Fundbox doesn’t offer 24/7 customer support, phone support is available from 8 a.m. to 8 p.m. EST Monday through Friday. Fundbox will respond to your emails within 24 hours, which is faster than some other companies we evaluated.

Fundbox has a helpful blog, FAQs page and support center that covers numerous topics addressing a variety of issues, including pricing terms, payments and security. There are tutorials to show you how to get started, use the dashboard and set up your accounting software with Fundbox.

Standout Feature: Transparent Pricing

Fundbox is one of the most transparent factoring services with its pricing. Regardless of what kind of business financing you need, transparency is a key feature to look for. When you select an invoice to factor, Fundbox presents you with the total amount you’ll pay before you even accept the advance. This can help you strategically select which invoices to factor.

Furthermore, it charges no application, origination, due diligence or maintenance fees. According to our conversations with customer support representatives, you pay $7 a week for a $1,000 advance on average, though your rates may be higher or lower depending on your agreement. This weekly price is somewhat higher than the $3.88 the website’s calculator estimates for the same amount. However, there’s no penalty if you repay the advance early, and Fundbox then waives the remaining fees for the weeks left on your term.


Although Fundbox is the best factoring service for startups, there are a few drawbacks to consider before working with this company:

  1. It’s more expensive than other lending options.
  2. The maximum advance is $100,000, which is a relatively small amount and may not solve your cash flow problems.
  3. You must repay weekly, rather than per invoice, which means you have to keep a close eye on your business bank account every week.
  4. Late fees add up quickly and can significantly cut into your profit margin if not dealt with immediately. If you make a late payment, expect to pay three times the weekly fee on top of an ACH missed payment reimbursement fee.


RTS Financial: Best Factoring Service for Freight and Trucking Companies

RTS Financial
  • RTS Financial offers web browsers and mobile apps that help truck drivers plan trips and find discounted diesel prices.
  • It does not charge minimum volume fees, ACH fees or invoice-upload fees.
  • You cannot apply online. Instead, you must contact the company to discuss your business and your options.


Editor's Rating: 9/10

Specializing in, but not exclusive to, the freight and trucking industries, RTS Financial has a slew of extra perks among invoice factoring companies. It offers a fuel card program that saves you 18 cents per gallon and a credit line up to $2,500 per truck per week, plus equipment leasing and trucking-related software that can help you manage every aspect of your business. It also offers an exclusive web browser and mobile app that helps truck drivers find discounted diesel prices, plan trips and more. Those extra features, on top of offering 97% of the total invoice and a lack of hidden fees, make it the best for freight and trucking companies.

To get started, you must file an application with a sales representative. It is a non-recourse factoring company, meaning your company cannot be held liable if a customer fails to pay. The company has been around since 1986.


Just like business lending services, factoring fees and rates are based on several different calculations and factors. Generally speaking, factoring companies consider the following when determining your rate:

  • Your industry
  • Your customers’ credit scores
  • How long it takes your customers to pay their invoice
  • The average value of the invoices you want to factor
  • The number of invoices you want to factor each month

Most factoring services charge between 1 and 5%. However, many services discount the rate the earlier your customers pay their invoices. For example, a factoring company may charge a 2% rate for invoices paid within 30 days, plus 1% every additional week until the invoice is paid. This fee structure is beneficial for businesses that work with fast-paying clients, but your fees quickly add up with just one slow-paying customer.

Your best option is to look for a service that offers a large percentage upfront and charges low fees. Universal Funding Corporation funds up to 95% of your invoices upfront and charges 0.55%.

The best factoring services also provide excellent customer service. Look for a factoring company that offers a dedicated account manager who can answer your questions or concerns about the service. Consider, too, the ease of reaching the company. All of the companies we reviewed offer the standard email and phone options; others offer local branches so you can meet with representatives in person.

What Is a Factoring Company?

A factoring company ‒ also known as invoice factoring or accounts receivable factoring ‒ is a service that purchases your open, unpaid invoices and advances your business money to cover a portion of those invoices. In other words, you “sell” the unpaid invoices your clients or customers owe you for roughly 80 to 100% of the value of the invoice.

After a factor purchases your receivables, they collect payment from your clients and customers directly. In some cases, a factoring company will operate behind the scenes, requiring you to contact the customer and collect their payment.

Once your customer pays their invoice, you receive the remaining amount of the invoice from the factoring company, minus their fees.

The primary reason businesses work with a factoring company is to open up their cash flow. Factoring is a good option if your business typically waits 30 to 60 days (or more) to receive payment from clients.

Benefits of Factoring Companies

Factoring can be a good option for improving your business’s cash flow, and there are many benefits of working with a factoring service, such as:

  1. You get cash immediately. The most obvious benefit of working with a factoring company is that you get cash fast. Traditional payment terms require customers and clients to pay in 30, 60 or even 90 days. If you’re waiting for an invoice for 90 days, you may damage relationships with clients, vendors and employees. For construction companies, factoring helps you secure critical materials for your next job. For agencies, having cash in hand helps you meet payroll so your employees are taken care of.
  2. Factoring is both a short- and long-term solution. Factoring can be a great way of funding your operation during the off-season when business is slow, you’ve hit a rough patch or your business is growing rapidly. It can also be a solution you use year-round to ensure steady cash flow.
  3. It’s generally easier than applying for a loan. In many cases, a traditional business loan is still the best way to get an injection of capital, but it takes time and requires a lot of paperwork. Factoring is fairly straightforward, and many companies will put cash in your hand within 48 hours of applying. [Interested in a business loan or other financing option? Check out our best picks and reviews.]
  4. The requirements are straightforward. Generally speaking, you qualify if you operate a business with commercial or government clients (who have good credit), and if your business is free of liens, encumbrances and legal problems.
  5. New and small businesses can use factoring. Without an established credit history, new businesses may struggle to find a traditional lender who will offer them a line of credit. Further, small businesses may not have a strong enough profit margin to attract a lender. Many factoring companies, on the other hand, work with startups and small businesses.
  6. Your line increases with your growth. Factoring scales with your business, which means you get access to more funds as you gain more customers or clients.
  7. Your invoices are collateral. With a traditional business lender, your personal and business assets can be used as collateral. This can include real estate, business equipment, inventory, vehicles and intangible assets. With factoring, the invoices are your collateral, which means you don’t have to surrender critical business or personal assets if your business is struggling.

Drawbacks of Factoring Companies

While there are benefits to using a factoring service, it can be a risky choice for a few reasons. The most obvious drawback is that you lose part of what would be a profit to fees.

Consider these elements as well before working with a factoring service:

  • Factoring rates are typically higher than traditional line of credit rates. Factoring gets cash in your hand quickly and with less paperwork compared to traditional lenders, but the rate is typically higher than that of a traditional loan. Your actual rate could range from 1 to 4% for 30 days.
  • Factoring companies may contact your customers. Most factoring companies communicate directly with your clients, and you do not want to burn bridges with loyal customers because a company represented your business poorly.
  • Factoring doesn’t fix your financial problems. Traditional lines of credit can be used to solve any number of financial crunches your business encounters, such as keeping your inventory fully stocked or opening a new storefront. While a factoring service may temporarily improve your cash flow problems, it won’t fix fundamental financial problems.

Another risk is with recourse factoring – the most common form of factoring – in which you agree to buy back accounts that your factoring service cannot collect. Generally, you receive around 80% of the total amount; whatever amount the factoring company initially fronts you, you must repay. Recourse factoring can put you in a worse financial position than you were in before you factored. If recourse factoring seems too risky, consider Factor Funding, as it offers nonrecourse factoring.

Before working with a factoring service, research its reputation. If it has a history or pattern of rude or harassing behavior, look elsewhere.

Factoring companies are not collection agencies. The main purpose of factoring companies is to improve your cash flow, not to harass your customers to pay a debt. If your customer is late paying, some factoring services notify your customers in writing, or they may call to ask for payment, but they generally do not drive customers away.

Still, do your due diligence that the company you choose has solid customer service and a helpful follow-up process that won’t drive your customers away. [Are you looking for a collection agency? Check out our best picks and reviews of those services.]

If factoring seems too risky, merchant cash advances are another option to consider. They are yet another alternative to a traditional loan.

How to Select the Best Factoring Company

The number of factoring companies is vast, so it’s important to carefully consider your business needs, what services are available to you and which companies have the best offers.

First, ensure that you are eligible to use the service. Some factoring services work with specific industries, such as trucking, gas or oil. CapitalPlus, for example, specializes in factoring for construction companies.

Most of the services we evaluated work with startups, and many will not turn you away if you have poor credit or a bankruptcy. Paragon Financial is a nonrecourse factoring company that ignores the personal credit of a business owner and, instead, focuses on the customer’s ability to pay. While this is beneficial for businesses with poor credit, your ability to secure money from a factoring service depends on the creditworthiness of your customers. Factoring companies will not purchase invoices if your customers are high risk.

Choosing the best factoring service for your business also depends on how delinquent your invoices are. Some companies don’t accept delinquent accounts or only accept invoices that are up to 45 days delinquent. On average, most companies accept accounts that are overdue between 60 and 90 days. Riviera Finance, on the other hand, has no maximum number of days an invoice can be overdue for the company to buy from you.

Last, consider the factoring service’s approval and funding process. The best services have a quick turnaround time for approval and funding. Many of the services we evaluated will review your application (and notify you of their decision) within 24 hours, and all can transmit funds 24 hours from the time you submit an invoice to be factored. All of the services we’ve listed are available nationwide, and most work with startups.

What Are the Best Factoring Companies?

After reviewing factoring services across the industry, our top-rated factoring companies are:

  • Best factoring service overall: altLine The Southern Banking Company
  • Best factoring service for small businesses: American Receivable
  • Best factoring service for fast invoices: BlueVine
  • Best factoring service for startups: Fundbox
  • Best Factoring Service for Freight and Trucking Companies: RTS Financial

The best factoring services do not charge startup or termination fees, and the percentage they charge for their services is low. If you do not want to factor all of your invoices, choose a service with no invoice minimum. (We’ve indicated in our reviews if the factoring service has an invoice minimum or not.) Some factoring companies require up to 24 months of commitment. (We also specify in each review if there is a commitment requirement.) The best companies don’t require you to commit to the factoring service for a period of time, so you are under no obligation to sell your accounts in the future.

What Types of Businesses Use Factoring Companies?

Generally speaking, any B2B (business-to-business) company that invoices their customers for goods and services provided giving 30- to 60-day terms can work with a factoring company. Common industries and businesses factoring companies work with include:

  • Truck companies
  • Freight brokers
  • Manufacturing companies
  • Wholesale companies
  • Business and consulting services
  • Medical offices

Alternatively, many factoring companies and financial entities won’t work together, so if you already have a business loan, you might not be able to factor invoices. A factor secures its rights to your invoices via a lien to grant them first rights on the asset. However, most banks and financial companies file a lien that covers all of your company’s assets, including your accounts receivable. A factoring company won’t work with you if another financial entity already has first rights on your accounts receivable.

In some cases, your bank may subordinate their position for your receivables so a factoring company can claim first rights, but the chances are slim. Accounts receivable is a valuable asset to use as collateral, and most financial entities won’t let go of this asset lightly.

Frequently Asked Questions

Freight factoring companies, also known as trucking factoring companies, operate similarly to other factoring companies, and you can expect similar rates and fees. Rates vary by company, but they usually start between 1% and 5%, and many freight factoring companies charge a lower rate for invoices that are paid quickly. 

No. You can only work with one factoring company at a time because it is otherwise too difficult to determine who has the first right to your company’s outstanding invoices. To establish the first right on your receivables, factoring companies file a UCC lien so they can start collecting your invoices.

Yes. If you switch to a different factoring company but still have outstanding receivables, you must arrange a buyout in which the new factor purchases the remaining invoices. Additionally, the UCC liens must be changed so the new factoring company establishes first right. Switching factoring companies can be an expensive process, especially if you signed a long-term contract with the original company. 

Many people use the terms “invoice financing” and “invoice factoring” interchangeably, but they operate very differently. A factoring company purchases the right to the value of your accounts receivable, whereas with an invoice financing company, you borrow against the value of your accounts receivable but still own your invoices. 

The main difference between recourse and nonrecourse factoring is who is responsible if your customer doesn’t pay their invoice. With recourse factoring, you are responsible for your customers’ unpaid invoices, though your rates will be lower for the added risk. If you work with a recourse factoring company, make sure your clients have a good credit history.

On the other hand, with nonrecourse factoring, you are not responsible for late or unpaid invoices. Rather, the factoring company accepts the risk, though nonrecourse factoring is more expensive than recourse factoring. 

In the United States, invoice factoring companies are not regulated by a formal government body. However, many factors are members of associations that self-regulate their practice, such as the International Factoring Association or the Secured Finance Network (formerly known as the Commercial Finance Association).

When using invoice factoring, you’re selling your unpaid invoices to a factoring company, which is different from requesting a bank loan from a financial institution. Bank loans require you to pay back principal and interest over a certain time period, and your funding potential is limited. Approval is determined by your company’s credit history, unlike invoice factoring, which is based on the credit strength of your clients.

Factoring has many advantages for small businesses, and a big one is helping manage cash flow. With factoring, you get paid as soon as you turn the invoice over to the factor – which can be as soon as you provide the service or ship the product. You won’t have to wait days, weeks or months to add cash to your bank account.

Since factoring is a sale of your invoices, you aren’t taking on new debt that may or may not have a high interest rate associated with it. You also aren’t stuck worrying when customers will make their payments since the factor can have the money to you quickly, which improves your ability to manage cash flow.

With more certainty about accounts receivable, you can better plan and take advantage of  growth opportunities that arise.

Factoring also eliminates the need to conduct collections internally. That frees you up to run the business and protects your relationship with customers – you won’t be the one chasing down payments; the factoring company does it for you.

Factoring companies offer several services around collecting past due payments for business customers. Here are four of the most common services they provide:

  • Recourse factoring. If the factoring company can’t collect payment on the invoices, the business owner must pay back any money advanced. This may be riskier for the small business, but the service typically has lower fees.
  • Nonrecourse factoring. If the customer doesn’t pay the invoice, the factoring company is on the hook. That means less risk to you and your business, but it does mean higher fees.
  • Spot factoring. This service is for businesses that only need to factor a single invoice. Typically, it’s for large invoices you’re having trouble collecting or don’t want to wait months to get paid for.
  • Whole ledger factoring. With this service, you factor all your invoices, which tends to be cheaper than spot financing. The risk with this type of factoring is that you could face a hefty fee if you terminate your contract before it expires.

Like other contracts, you can terminate a factoring contract at the end of the specified term and before the renewal period ends. Every factoring company that we evaluated requires clients to give notice before the renewal date; the time periods vary, however, it can be anywhere from 30 to 90 days. Check the contract to verify how early you need to submit notice.

If you want to cancel before the term ends, there are fees involved. Early cancellation fees vary; again, you will need to check the contract.

If your business experiences financial difficulties, factoring invoices can give you access to cash flow – you won’t have to wait for your customers to pay you. That could mean the difference between keeping the lights on or shutting down operations.

Many factoring companies offer collection services, which can be helpful if unpaid invoices are impacting your cash flow.  While the factoring service is following up on unpaid invoices, you can focus on bringing in new business.

Factoring may cost you more money than a bank loan, but the requirements are less stringent, which means that even if your business credit score or personal credit score isn’t stellar, you may still qualify for factoring.

You get several main benefits from partnering with a factoring service:

  • It saves you time. Time is money, and when you’re spending it chasing customer invoices, it means less time to grow your operations. When you use a factoring company, you get some of that time back. Its staff will be the ones doing the legwork to recover the money, not you.
  • You get instant access to cash. Since the factoring company takes over your accounts receivable, you get quicker – sometimes instant – access to cash. You won’t spend months waiting to collect money from customers.
  • It doesn’t require collateral. Bank loans require you to put up business or personal collateral. That’s not the case with factoring, since the company is paying you a discount for your accounts receivable.

Factoring companies charge either a variable or fixed rate, depending on your industry. With variable fees, the factoring company typically charges 1% to 3% of the invoice for as long as it goes unpaid. This charge is known as the discounting rate. If the customer pays quickly, the fees are lower. If it takes longer to collect, expect to pay more. For example, a factoring company could charge 1.15% in the first month and then 0.5% every 15 days the invoice isn’t paid.

With a fixed-rate plan, which is common in the trucking industry, the factoring company’s rate stays the same, whether it takes 10 or 60 days to collect.

We recommend that you gather your company information and accounts receivable documents before starting the application process. The information you need to provide varies from one factoring company to the next, but it typically includes your business and personal phone numbers, email address, and details about your business such as your monthly invoicing volume and the sector you operate in.

Most factoring companies also request an accounts receivable aging report that lists your unpaid invoices, a copy of your articles of incorporation, your business bank account information, and your tax ID number. Factors for certain industries may have specific guidelines and additional requirements that you must meet before being approved for invoice factoring.

Invoice factoring takes unpaid invoices and turns them into cash so businesses can fund their short-term capital needs. Invoice factoring provides business owners with access to the cash from invoices quickly, helping them bridge the gap as they await payments, which improves their cash flow.

A factoring agreement is the financial contract that spells out all the costs of factoring, including upfront expenses, maintenance and termination fees. It also explains the consequences if the business can’t repay the factoring company. A factoring agreement ensures both parties understand their obligations. Factoring agreements are legally binding for both the factoring company and your business.

Invoice factoring costs money, which means you’ll earn less profit on the invoices you turn over to the factoring company. It’s not right for every business, and it’s a decision that shouldn’t be made lightly.

Invoice factoring is best if your customers are businesses rather than individuals. Business clients usually pay 30, 60 or 90 days out, and invoice factoring can give you access to cash while you await payment. These are some other scenarios where it may make sense to use invoice factoring:

  • You don’t have the credit to get a loan or use a credit card.
  • You have gaps in cash flow due to the seasonality of your business.
  • Your business is growing quickly and you need more cash to sustain that growth.

Factoring works best for companies that have outstanding invoices and/or customers who don’t pay their bills on the spot. When shopping for a factoring company, be mindful of the industry each factor serves; some only work with specific industries. Some common industry specialties for factoring companies are trucking and freight, manufacturing, wholesale, business consulting, and medical offices.

Your ability to use factoring also depends on the creditworthiness of the customers you serve. It is uncommon for factoring companies to purchase invoices if the customer is a high risk for nonpayment. Some companies also stay away from businesses that have delinquent accounts, while others will only accept accounts that are up to 45 days past due. The industry average is 60 and 90 days past due.

With factoring, you sell your customers’ unpaid invoices to a lender (the factoring company) at a discount in exchange for a lump sum of cash. The factoring company oversees the collection process; it gets paid when it collects the money from your customers, usually in 30 to 90 days. With a business loan, you borrow money at a fixed or variable rate for a predetermined amount of time, with payments due weekly, biweekly or monthly.

Our Methodology

When considering factoring services, we looked at two elements: features and eligibility. For features, we considered the rates and fees the factoring services charge and their processes (application, approval and funding). With eligibility requirements, we researched the number of days an invoice can be overdue and the maximum amount a company will factor monthly. We also checked whether the service offered nonrecourse factoring and what types of commitments they require of clients.

We scoured websites and contacted dozens of factoring services to get answers to our questions and also to gauge their level of customer support. While some companies weren’t as responsive, most of the companies we reached out to quickly responded, supplying the requested information. Overall, representatives from the services we evaluated were knowledgeable and very helpful.

Parting Advice

All of the services we’ve reviewed are good, reputable companies. However, the best factoring company for your business depends on your needs. Consider the rates and fees of each company, but remember that they’re all in the same range.

Above all, make sure that factoring is the right step for your company. We recommend a company that offers nonrecourse factoring, such as Riviera Finance. Additionally, weigh how much you need to factor each month and how long you need to factor, as each company varies in what it will accept. American Receivable factors invoices that are 120 days past due while Riviera Finance will factor invoices regardless of how overdue they are. Charter Capital, by contrast, doesn’t accept delinquent accounts.

Finally, consider the support that each company provides. They will, after all, be working with your customers – you want your customers to have a positive experience. Our best customer service experiences were with Riviera Finance and American Receivable. All of the services we’ve reviewed are solid choices; it boils down to what’s best for you.

What to Expect in 2023

Uncertainty abounds for small business owners in 2023 with the recovery from the pandemic still ongoing. Banks are reticent to lend, and credit card companies are tightening their credit limits. Alternative lending, including factoring, will continue to fill the void.

If history is any evidence, invoice factoring companies should see increased business in 2023. Just like factoring helped small businesses during the 10 years following the Great Recession of 2008, the same is shaping up to be true of the COVID-19 pandemic.

With bank loans and new business credit cards harder to come by, small businesses are turning to factoring companies to access capital. That demand is expected to continue in 2023 as cases of coronavirus continue to rise.

At the same time, demand in increasing liquidity won’t be as abundant as the coronavirus hurts the global economy. That means less factoring loans to support more small businesses. To prevent a cash flow crisis, it’s important for small business owners to diversify their funding sources as they head into the new year. Factoring may cover some, but likely not all, of your cash funding needs in 2023.

Many of the small businesses owners who are shopping for a factoring vendor in 2023 may be worried about their current credit score, as the pandemic has devastated many businesses and wrecked owners’ credit scores in the process. The good news is that factoring companies don’t care about your credit score. Rather, they care about your invoices and your customers’ creditworthiness.

When choosing a factoring company in 2023, be aware that if your invoices are more than 45 days delinquent, some factoring companies may turn you down. Make sure you choose a reputable factoring provider that doesn’t overcharge to finance your invoices.

Simone Johnson
Staff Writer at
Simone Johnson is a and Business News Daily writer who has covered a range of financial topics for small businesses, including on how to obtain critical startup funding and best practices for processing payroll. Simone has researched and analyzed many products designed to help small businesses properly manage their finances, including accounting software and small business loans. In addition to her financial writing for and Business News Daily, Simone has written previously on personal finance topics for HerMoney Media.
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