If your business invoices other companies and waits 30 to 90 days to get paid, invoice factoring can turn those unpaid invoices into cash this week. It is one of the most common ways B2B businesses bridge the gap between doing the work and collecting on it. This guide explains how it works, what it costs, and who it fits.
How invoice factoring works
In factoring, you sell your unpaid invoices to a factor at a discount. The factor advances you most of the invoice value up front (often 80 to 95 percent), then pays you the remainder, minus a fee, once your customer pays. You get working capital immediately instead of waiting out the payment terms.
What it costs
The cost is a factoring fee, usually a small percentage of the invoice that may rise the longer the invoice goes unpaid. Because the fee is tied to invoices rather than a credit score, factoring is often available to businesses that a bank would decline. The total cost depends on your invoice volume, your customers, and how quickly they pay.
Recourse vs non-recourse
With recourse factoring, you are responsible if your customer never pays; with non-recourse, the factor absorbs certain non-payment risk for a higher fee. Recourse is more common and less expensive. Understand which applies before you sign, along with whether the arrangement is disclosed to your customers.
Who it fits and how it differs from a loan
Factoring fits B2B businesses with creditworthy customers and slow payment terms — staffing, trucking, manufacturing, and commercial services are common. It is not a loan: you are selling an asset (your receivables), so approval depends on the strength of your invoices and customers rather than your credit. Eligible businesses can often be set up within days. Not all applicants qualify.
The bottom line: invoice factoring converts receivables into same-week cash and is approved on your invoices, not your credit. Y Millennial Funding helps businesses doing $25,000 or more in monthly revenue access invoice factoring and revenue-based funding — small business loan alternatives, not loans.