Invoice factoring.
In plain English
Invoice factoring turns money you are owed into cash today. A business sells its unpaid invoices to a factoring company, which advances most of the value up front, often 80 to 90 percent, and pays the rest, minus its fee, once the customer pays. It solves a timing problem for businesses that wait 30 to 90 days to get paid but need cash to operate now. The cost is the factoring fee, which can be steep when annualized, and in some arrangements you are on the hook if the customer never pays. It is financing against receivables, not a loan.
01Why it matters
Factoring can bridge a cash-flow gap while you wait on slow-paying customers, but the fees can be expensive, so weighing that cost against the need for cash is essential.
02The math, step by step
You factor a 10,000 dollar invoice. The factor advances 8,500 dollars now and, once your customer pays, sends the remaining 1,500 dollars minus a 300 dollar fee, so you receive 9,700 dollars total but weeks sooner.
03What this is NOT
Invoice factoring is NOT a loan. You are selling your unpaid invoices for cash now, not borrowing against them, so there is no loan balance, though the fee can cost more than a loan's interest.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.