How it works
You deliver the work and issue the invoice. A factor advances you most of its value now, collects from your customer on the normal terms, then remits the balance less their fee.
The critical point is that factoring is underwritten on your customer's creditworthiness, not yours. That makes it available to businesses with thin credit files, as long as they invoice solid commercial customers.
Recourse vs non-recourse
| Recourse | Non-recourse | |
|---|---|---|
| If the customer never pays | You buy the invoice back | The factor absorbs it, within defined limits |
| Cost | Lower | Higher |
| Typical use | Established customer relationships | Concentration in one or two large customers |
Non-recourse is not blanket protection. It usually covers customer insolvency, not a dispute over whether the work was done properly. Read what is actually excluded.
What it costs, honestly
Factoring is priced as a discount on the invoice, often with the fee stepping up the longer the invoice stays unpaid. Compare offers on total dollars given up per invoice, not on the headline percentage, and model what happens if your customer pays at 75 days instead of 30.
When factoring is the wrong tool
Common questions
Is factoring a loan?
No. You are selling an asset — the invoice — at a discount rather than borrowing against it.
Does my credit score matter?
Less than usual. The factor is relying on your customer to pay, so their creditworthiness carries most of the weight.
Will my customers know?
In most arrangements yes, because they are told to pay the factor directly.
What if I need money before I invoice?
Factoring cannot help there. Deposit-based working capital or purchase order financing covers the pre-delivery gap.
See what you qualify for
Same-day decision. Applying takes a few minutes and will not affect your credit score.