Our goal at Lending Valley is to provide all small business owners access to the best loans possible for their business. You can rest assured we will get you the best rates in the market!
Waiting 30, 60, or even 90 days for clients to pay their invoices is one of the biggest cash flow challenges small businesses face. Invoice factoring solves this problem by converting your outstanding invoices into immediate cash — typically within 24 hours.
This guide covers everything you need to know about invoice factoring: how it works, what it costs, who qualifies, and whether it’s the right choice for your business.
Invoice factoring is a type of business financing where you sell your unpaid invoices to a factoring company (called a “factor”) at a discount. The factor advances you 80-95% of the invoice value upfront, then collects payment directly from your customer. Once the customer pays, the factor sends you the remaining balance minus their fee.
Unlike a loan, invoice factoring is not debt. You’re selling an asset (your receivable) rather than borrowing money. This means there’s no repayment schedule and no interest accruing — just a flat fee based on the invoice amount and how long it takes your customer to pay.
Step 1: You deliver goods or services to your client and issue an invoice with net-30, net-60, or net-90 payment terms.
Step 2: You submit the invoice to a factoring company like Lending Valley. The factor verifies the invoice and your customer’s creditworthiness.
Step 3: You receive an advance — typically 80-95% of the invoice value — deposited into your bank account within 24 hours.
Step 4: Your customer pays the factor directly when the invoice is due.
Step 5: You receive the remainder of the invoice amount, minus the factoring fee (typically 1-5% of the invoice value).
Factoring fees vary based on several factors including invoice volume, your customer’s creditworthiness, your industry, and how quickly your customers pay. Here’s a general breakdown of what to expect:
For invoices paid within 30 days, expect fees of 1-3% of the invoice value. For 60-day payment terms, fees typically run 2-4%. For 90-day terms, fees range from 3-5%. High-volume accounts with creditworthy customers can negotiate rates as low as 0.5-1% per month.
Invoice factoring works best for B2B businesses that invoice other companies. The most common industries include trucking and transportation, construction and contracting, staffing and temporary agencies, manufacturing, wholesale and distribution, commercial cleaning, IT services and consulting, and healthcare and medical billing.
Compared to a business line of credit, factoring doesn’t require strong personal credit and is based on your customers’ ability to pay rather than yours. Compared to a merchant cash advance, factoring typically costs less and works for businesses that invoice other companies rather than processing credit card sales. Compared to SBA loans, factoring offers much faster funding (24 hours vs. weeks) with no collateral required, though SBA loans offer lower rates for those who qualify.
Advantages: Immediate cash flow improvement, no debt on your balance sheet, approval based on your customers’ credit (not yours), scalable — factor more as you grow, and no long-term contracts required with many factors.
Disadvantages: Costs more than traditional bank financing, your customers will know you’re factoring (in most cases), you need B2B invoices (consumer invoices typically don’t qualify), and some industries have limited factoring options.
When evaluating factors, look at the advance rate (80-95%), the factoring fee structure (flat vs. variable), contract terms (recourse vs. non-recourse), minimum volume requirements, and how they handle customer relationships. Lending Valley can connect you with factoring partners that specialize in your industry and offer competitive rates.
If slow-paying invoices are hurting your cash flow, invoice factoring could be the solution. Apply now at Lending Valley — get approved in as little as 24 hours and start converting your receivables into working capital today.
