Selling on credit is how most business to business companies grow, and it is also how many of them run short of cash. You deliver the work, you send the invoice, and then you wait thirty, sixty or ninety days to be paid while your own bills arrive on schedule. Invoice factoring turns that wait into cash by letting you sell your unpaid invoices for an advance. fundivi offers factoring from $25K to $10M. Unlike our fastest products, it typically takes about one to two weeks to set up, and this guide explains how it works, what it costs you in control and in cash, and whether it fits your business.
If your business has been open for 6 months or more, brings in $30K or more in monthly revenue, and the owner has a personal credit score of 550 or higher, you can see what you qualify for in about 2 minutes.
How Factoring Works Step by Step
The mechanics are easier to understand with a timeline.
First, you do the work and invoice your customer, as you normally would. The invoice says payment is due in, say, 45 days.
Second, you submit that invoice to the factoring provider. The provider reviews it, along with your customer's payment history.
Third, you receive an advance, typically a large share of the invoice value, within a short time. This is the money you can use right away for payroll, materials or whatever the business needs.
Fourth, your customer pays the invoice on its normal due date, directed to the provider.
Fifth, the provider releases the remainder to you, less its fee. The fee depends on the agreement, the invoice size and how long the invoice takes to be paid.
The key idea is that factoring is not a loan against your business. It is a sale of an asset, the invoice, and the decision rests heavily on how likely the customer is to pay.
Whose Credit Matters Most
In most financing, your own credit and cash flow carry the decision. In factoring, the creditworthiness of your customers is central, because they are the ones who will pay. A strong business owner with a few slow paying or shaky customers may find it harder, while a newer or smaller business whose customers are large, reliable companies may qualify more easily than it would for a traditional loan.
This is why factoring can be a good fit for young and fast growing companies. If your customers are solid, the structure lets you leverage that strength even if your own history is short. fundivi's baseline requirements still apply, 6 months in business, $30K or more in monthly revenue and a 550 FICO, but the strength of your customers is a significant part of the review.
Who Factoring Fits Best
Factoring works for businesses that invoice other businesses or government entities and wait for payment. Common examples include staffing agencies, trucking and logistics companies, wholesale distributors, manufacturers, janitorial and security services, and contractors who bill on completion. What these have in common is steady invoices to creditworthy customers and a cash gap between the work and the payment.
It tends to fit less well for businesses that sell directly to consumers and are paid at the point of sale, since there are no invoices to sell. It is also awkward when invoices are disputed often or when customers are small, informal or slow in ways that make payment uncertain.
Notification and Non Notification
An important decision is whether your customers will know. In notification factoring, your customers are told that their invoices have been sold and are instructed to pay the provider directly. This is common, simple, and helps the provider track payments.
In non notification arrangements, your customers continue to pay you as usual, and you remit the payments to the provider. This can protect your customer relationships and avoid any perception of financial difficulty, but it requires discipline on your side, because the provider relies on you to forward payments. Availability and terms differ, so ask what applies to your deal.
Many owners worry that factoring signals weakness to customers. In practice factoring is widely used and broadly understood in industries like trucking and staffing. If it is a concern, discuss the options early.
Recourse and Non Recourse
This distinction determines who bears the risk if a customer does not pay.
With recourse factoring, you remain responsible. If the customer fails to pay within an agreed period, you may need to buy back the invoice or replace it with another. Because the provider carries less risk, recourse arrangements are generally cheaper.
With non recourse factoring, the provider takes on the risk that the customer cannot pay, usually because of insolvency, up to the terms of the agreement. It typically costs more. Non recourse often does not cover a customer who simply refuses to pay because of a dispute, so read the definition of what counts as covered carefully.
The right choice depends on how well you know your customers. If you trust them and want a lower cost, recourse may be sensible. If a few large customers represent most of your revenue and a failure would hurt, the extra protection of non recourse may be worth it.
Choosing Which Invoices to Factor
You do not always have to factor everything. Some arrangements let you choose specific invoices, while others cover all invoices to certain customers. Think about which invoices create your biggest cash strain.
Large invoices to reliable customers on long terms are the natural candidates, because they tie up the most cash for the longest time. Small invoices to customers who pay quickly may not be worth factoring, since the fee on a short wait may not justify the advance. Concentration matters too. If one customer represents most of your receivables, a provider may look closely at that customer.
Ask whether you can factor selectively or whether the arrangement requires a minimum volume. This affects both cost and flexibility.
What It Costs
Factoring fees vary with the invoice size, the customer's payment history, how long the invoice takes to be paid and whether the arrangement is recourse. A longer wait usually costs more, since the provider's money is tied up longer. It is common for fees to be quoted per period, which means the total depends on how long the invoice stays open.
The right way to judge the cost is to compare it with the alternative. If the advance lets you take on a contract worth much more than the fee, or avoid a costly cash shortage, it can pay for itself. The cost calculator can help you model the numbers, and you should ask for the full fee schedule, any minimums, and any additional charges in writing.
Factoring Compared With a Line of Credit
Many owners weigh factoring against a business line of credit. A line is revolving and based mainly on your own finances, and it can be used for anything. Factoring is based on your invoices and customers, and the advance rises with your sales, so it scales with growth in a way a fixed limit does not.
If your own credit is limited but your customers are strong, factoring may open doors a line cannot. If your invoicing is irregular, or you want flexibility to use funds in many ways, a line may be simpler. Some businesses use both, and a conversation about your situation can clarify which mix makes sense.
It is also worth comparing with faster products. Working capital can be decided and funded the same day, which factoring cannot match at setup. If you need cash today, working capital may bridge you while a factoring arrangement is established for the longer term.
What Happens if a Customer Disputes an Invoice
Disputes are a fact of business life. A customer might claim the work was incomplete, the quantity was wrong or the price was not as agreed. In factoring, disputed invoices are a concern because the provider's advance depends on the invoice being paid.
Most agreements allow a provider to decline or charge back disputed invoices. The best protection is good paperwork. Keep signed delivery confirmations, purchase orders, contracts and clear invoices. Resolve concerns with customers early and tell your provider if a problem develops. Factoring works best when your invoicing is clean.
How to Prepare
A smooth start depends on organization. Gather an accounts receivable aging report, which lists your open invoices and how old they are, along with sample invoices, your customer list and recent bank statements. The aging report is particularly valuable, because it shows how quickly your customers pay and where the cash is stuck.
fundivi's underwriting engine reviews your bank activity alongside the invoice and customer details. Because factoring is a more involved setup, the process typically takes about one to two weeks. The how it works page walks through the stages.
A Worked Example
A staffing agency places temporary workers with manufacturers. It pays its workers every week but invoices clients on net 45 terms. With $120K in monthly billings, it is always waiting on roughly $180,000 in open invoices while payroll goes out every Friday. A growing client wants twice as many workers, but the agency cannot fund the extra payroll until the first invoice is paid weeks later.
Factoring solves the problem. The agency sells its invoices to the provider, receives an advance within days of invoicing and uses it to meet payroll, with the remainder released when the client pays. Because the clients are established manufacturers with solid payment histories, the review favors the agency. As volume grows, the available advance grows with it, which is exactly what the agency needs.
A retailer paid at the register would find none of this useful, which is why the first question is always whether you have invoices to sell.
Next Steps and Resources
If you are not sure factoring is the right structure, the funding product matcher can point you toward a likely fit, or you can book a consultation to review your receivables. To learn about the company, visit the about page, and for further guides see our resources. fundivi is a hybrid lender that matches you first against its own capital and can bring in vetted partners when another structure fits.
Questions to Ask a Factoring Provider
Because factoring involves your customers, the details matter more than they do with a simple loan. Before you sign, ask about the following.
What is the advance rate, and how is the remainder paid? Understand how much you receive up front and when the rest arrives.
How are fees calculated, and do they increase the longer an invoice stays open? Ask for a worked example using a real invoice of yours.
Are there minimum volumes, minimum terms or termination fees? Some agreements require you to factor a certain amount or stay for a set period.
How will customers be contacted? Ask who communicates with them, how, and what the tone will be. Your customer relationships are valuable and worth protecting.
What happens if an invoice is unpaid past a certain date? In recourse arrangements, find out exactly when you are responsible and what you must do.
Which invoices are excluded? Providers commonly exclude invoices that are disputed, very old, or owed by customers they do not approve.
A clear provider answers all of these without hesitation. If the answers are vague, treat that as information.
Frequently Asked Questions
How is factoring different from a loan?
You are selling your invoices, not borrowing against your business. The decision rests heavily on how reliably your customers pay.
Whose credit matters most?
Your customers' creditworthiness is central, along with your own business basics. fundivi still looks for 6 months in business, $30K or more in monthly revenue and a 550 FICO.
How long does factoring take to set up?
About one to two weeks at fundivi. If you need cash sooner, working capital can often be decided and funded the same day.
How much can I factor?
fundivi factoring runs from $25K to $10M, depending on your receivables and customers.
Do all my customers need to be factored?
Not necessarily. Some arrangements allow selective factoring. Ask what applies to your deal.
Is factoring only for large invoices?
Invoice size affects whether it is worthwhile, since fees and minimums matter. Larger invoices on long terms are the most natural fit.
Next Steps
If your cash is stuck in unpaid invoices, factoring can free it. Take the 2 minute application to see what your business qualifies for.
