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The Factoring Process

Invoice factoring, also known as accounts receivable factoring or invoice financing, is a financial transaction where a business sells its accounts receivable (invoices) to a third party, known as a factoring company. This process helps businesses improve their cash flow by obtaining immediate funds based on the value of outstanding invoices, rather than waiting for customers to pay.

Here’s how the factoring process works:

Application Process

  • A business applies for invoice factoring with a factoring company.
  • The factoring company evaluates the business’s creditworthiness and the quality of its accounts receivable.

Agreement & Terms

  • If approved, the business and the factoring company enter into an agreement outlining the terms and conditions of the factoring arrangement.
  • This agreement typically includes information such as the advance rate, factoring rate, and the length of the term. The advance rate denotes the percentage of the total invoice amount that the factoring company will advance to your business, which typically ranges between 75% and 95%, but can vary depending on the specific factoring agreement.

Submitting Invoices

  • The business sells its products or services to its customers and generates invoices as usual. The business then submits selected invoices to the factoring company for financing.
  • In the factoring process, the responsibility for invoicing customers is typically transferred to the factoring company.
  • When businesses choose to factor their slow-paying invoices, they sell these invoices to a third-party factoring company. Upon doing so, the factoring company assumes the responsibility of initiating and sending invoices to the customers.

Verification & Approval

  • The factoring company verifies the legitimacy of the submitted invoices and the creditworthiness of the customers.
  • Once approved, the factoring company advances a percentage (usually 70-90%) of the invoice amount to the business.

Customer Payout & Settlement

  • The business’s customers pay the invoice amount directly to the factoring company.
  • Upon receiving payment, the factoring company deducts its fees and the reserve amount.
  • The remaining funds are then released to the business.

The factoring process is quick, easy and gets your company the funding you need within 24 hours.

Factoring Resources:

What is Invoice Factoring?
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How Does Invoice Factoring Work?

Serve Your Customers

Provide goods and/or services to your customers as usual.

Submit Invoices

Submit the invoices you wish to factor.

Factoring Company Verifies the Invoice

The factor verifies that your product was delivered and/or service was performed.

You Receive a Cash Advance

The factoring company advances you the cash within 24 hours.

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