# Invoice factoring

> Invoice factoring is selling your unpaid invoices to a factoring company for immediate cash (typically 80-95% of invoice value). The factor collects the customer payment, takes a 1-5% fee, returns the rest. Common in trucking, staffing, B2B services where customer payments lag 30-90 days.

Invoice factoring lets you convert unpaid invoices to immediate cash. You sell the invoice to a factoring company (the "factor") and get paid right away. The factor takes responsibility for collecting from your customer.

**The mechanics.**
- You invoice a customer for $10,000 (Net 30 terms).
- You sell the invoice to a factor: factor advances 90% ($9,000) immediately.
- Factor collects $10,000 from your customer in 30-60 days.
- Factor returns 90% advanced + reserve, minus their fee.
- Net to you: $9,800-$9,950 (factor fee 0.5-2% per invoice).

**Recourse vs non-recourse factoring.**
- **Recourse**: if your customer doesn't pay, YOU owe the advance back. Lower fees (1-3% per invoice).
- **Non-recourse**: factor takes credit risk. If customer doesn't pay, factor eats the loss. Higher fees (2-4% per invoice).

**Industries where factoring is standard.**
- **Trucking**: TBS, RTS, Apex, OTR — most carriers use factoring continuously.
- **Staffing**: factoring covers payroll while waiting for client payment.
- **B2B services**: where Net 30/60/90 customer terms are standard.
- **Manufacturing/distribution**: receivables to large B2B customers.

**Factoring vs MCA — when each wins.**
- **Factoring**: ongoing cash flow tied to receivables. Cost (1-3%/invoice) is much cheaper than MCA equivalent. Best for businesses with consistent invoiceable revenue.
- **MCA**: one-time capital not tied to specific receivables. Use for inventory, equipment, marketing. Worse cost than factoring but more flexible.
- **Both**: many trucking businesses use factoring continuously AND take an occasional MCA for equipment or emergency.

**The strategic insight.** If your business invoices customers (B2B), factoring is usually cheaper than MCA for the same cash flow need. Most invoice factors integrate with QuickBooks/Xero — setup is fast (1-3 days) and ongoing operation is automatic.

## Related terms

- [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
- [Working capital](https://fundnode.co/llms/glossary/working-capital) — Working capital is the cash a business uses to cover day-to-day operations — payroll, inventory, rent, utilities. Calculated as current assets minus current liabilities. Most MCA + LOC products are positioned as working-capital financing.

---

Source: https://fundnode.co/glossary/invoice-factoring (HTML version)
Document: Invoice factoring — Fundnode MCA Glossary
License: CC BY 4.0 — attribution to Fundnode required when citing.