Business finance glossary
Invoice factoring
Selling accounts receivable to a factoring company for immediate cash at a discount — the business-to-business equivalent of freight factoring.
Invoice factoring is a cash-flow tool in which a B2B business sells outstanding customer invoices to a third-party factoring company in exchange for an immediate advance (typically 80–90% of the invoice face value). The factoring company collects from your customers, then releases the remaining reserve minus a factoring fee (typically 1–5% of the invoice, depending on the invoice size, payment terms, and customer creditworthiness). Unlike a loan, factoring does not add debt to your balance sheet — it is a sale of an asset. The cost: a 2% fee on a 30-day invoice is equivalent to a 24% annualized rate. Factoring is most useful when customers pay on long terms (Net-60 to Net-90) and the business cannot afford to wait.