Is factoring a loan? Does it put debt on my balance sheet?

A properly documented factoring facility is a true sale of the receivable, so the receivable comes off your balance sheet and no debt goes on. That distinction matters if you have covenants elsewhere restricting additional indebtedness. The factor does file a UCC financing statement on your receivables, which is a lien and will be visible to any other lender, so existing secured lenders generally need to subordinate.

What is the difference between recourse and non-recourse factoring?

Under recourse factoring, if your customer never pays, you buy the invoice back. Under non-recourse, the factor absorbs that loss. The distinction is narrower than it sounds: non-recourse ordinarily covers customer insolvency only, not disputes, short payments, or a customer withholding because of a quality issue. Those come back to you under either structure. Non-recourse typically costs 0.25%-0.75% more per 30 days, and it is worth paying when the ledger is concentrated in a few names.

Can I factor a single invoice instead of my whole ledger?

Spot factoring exists and can solve a one-off gap, though it prices well above a committed facility, often 3%-5% for a single invoice, because the funder underwrites a customer relationship it will not see again. Most facilities instead ask for the whole ledger or all invoices from selected customers. If your need genuinely is one invoice once, say so early, because the lender set is different.

Which invoices will a factor refuse to buy?

Anything pre-billed or covering work still in progress. Invoices already more than 90 days old. Invoices to a customer you also buy from, because the contra account can be netted against what you are owed. Related-party invoices. Consignment and guaranteed-sale arrangements, where the sale is not final. Progress billings and retainage. Foreign receivables without credit insurance. Anything under dispute. Expect roughly 5%-15% of a typical ledger to be ineligible, and size the facility on the eligible portion rather than on the gross ageing.

How quickly can a facility be in place?

Five to ten business days from a complete submission to the first funded invoice, then 24 to 48 hours per submission after that. The step that most often extends it is obtaining a subordination or lien release from an existing secured lender, which depends on that lender rather than on the factor. If you know a blanket lien is on file, raise it in the first conversation.

What is invoice factoring?

Invoice factoring is when you sell your unpaid B2B invoices to a factor for immediate cash. You get 75-95% of invoice value within 24-48 hours instead of waiting 30-90 days. Unlike a term loan, factoring is self-liquidating. As customers pay, the debt automatically decreases.

How quickly can I get cash?

Approval typically takes 2-3 weeks. Once approved, you receive 75-95% of invoice value within 24-48 hours. Our real example: healthcare supply manufacturer approved and funded in 3 weeks, then expanded from $1MM to $1.5MM within 2 months as sales grew.

Can I get factoring if my tax return shows a loss?

Yes! This is one of factoring's biggest advantages over traditional bank loans. Banks look at tax returns. We look at invoices. If your customers are paying reliably and your invoices are strong, your tax return doesn't disqualify you. Your invoice quality and customer creditworthiness are what matter.

Why is factoring better than a bank line of credit?

Factoring is self-liquidating (debt decreases as customers pay), scales automatically with your sales, has no balance sheet impact, and doesn't require collateral beyond your invoices. Banks require strong credit, tax returns, and collateral. Their rates are often higher. A real example: one client got Prime + 2% on AR factoring (single-digit when combined), vs. traditional bank rates of 8-13%.

Do I have to factor all my invoices?

No. Selective factoring lets you choose which invoices to factor and which to collect yourself. This flexibility is perfect for businesses with mixed payment terms or situations where you only need cash during specific periods.

Can a working capital loan bridge to a cheaper facility later?

Yes. This is what we call the one-then-three approach. A fast revenue-based working capital loan stabilizes the business in under a week while we build out a permanent asset-based line, factoring facility, or SBA loan in parallel over the next 6–8 weeks. We negotiate the working capital terms so there is no prepayment penalty when the cheaper structure takes over.

What is the difference between invoice factoring and asset-based lending?

Factoring and ABL are cousins. Both are revolving lines secured by your receivables, often with an inventory add-on. The key difference is that factoring is not a debt product. It is a recurring sale of an asset, so it does not show up on your balance sheet as debt and personal guarantees are often replaced with a validity guarantee. ABL is a true line of credit on the balance sheet and tends to price lower for businesses that qualify, but it takes 6–8 weeks to set up versus 3–4 weeks for factoring.

Will my customers know I am factoring my invoices?

Your customer is aware in the sense that their A/P team will be told to send payments to a new bank account, typically still in your company name on the remit-to. Most factors do not require you to disclose that you are factoring; you can simply say you have a new collections partner. The factor will make a couple of verification calls at the start of the relationship to confirm the invoice is real, and then the operational change for your customer is essentially a different routing number.

How much does invoice factoring actually cost on an annual basis?

As of 2026, a clean profile runs 12–14% all-in on an annualized basis; middle-of-the-road distressed companies sit at 18% or so; and harder cases can run into the mid-twenties. A common term-sheet structure is 1.5% for the first 30 days plus 0.5% every 10 days thereafter, which translates to roughly 18% APR if your customers pay in 30 days and higher if they stretch. Watch for layered fees. Some factors quote a low discount rate but add a separate rate on borrowed funds. We always do the all-in math before signing.

Does my personal credit score matter for invoice factoring?

Not nearly as much as it does in cash-flow lending. Factors underwrite on the credit of your account debtors, the customers who owe you money, because that is who actually pays them. Owners with bruised credit who got declined by a bank on FICO grounds can absolutely qualify for factoring if their customer mix is strong. This is the single most common bank-decline reframe we run.

Does invoice factoring work for construction companies?

Often not as cleanly as people expect. Construction AR tends to be thin relative to revenue, concentrated in three or four large customers, with milestone billing and retainage holdbacks of 10% sitting out six to twelve months. A factor wants steady, recurring, lots-of-customers AR. Construction usually has the opposite shape. For construction, we more often pivot to MCA consolidation into a true-term product, a real-estate-backed bridge on owned land, or job-mobilization financing that covers upfront materials and labor.

What is the difference between asset-based lending and factoring?

Factoring and ABL are cousins. Both are revolving structures collateralized by your receivables, with optional inventory layered underneath. The difference is that factoring is a recurring sale of an asset and does not show up on your balance sheet as debt, while ABL is true debt with a weekly or monthly borrowing-base certificate. ABL usually wins on cost for larger, well-run operators; factoring is often the right tool for smaller deals or businesses with rougher financials.

Is there a minimum deal size for asset-based lending?

Most bank-owned ABL desks start at $3M to $5M minimums, which is why we place most of our ABL in the $3M and up range. Below that, we usually steer clients to factoring or a structured revenue-based line because the underwriting cost of a true ABL does not pencil out for the lender on a smaller facility. We will tell you honestly if you are below the threshold and route you to the right product.

What is purchase order (PO) funding and how does it work?

PO funding pays your supplier directly, domestic or overseas, so you can fulfill a confirmed customer order before you have customer cash in hand. The lender gets paid off the moment you invoice the end customer, which is why PO funding is almost always paired with a factoring or AR line as the takeout. As of 2026, expect 2%–3% per 30 days on the PO side and roughly half that on the AR back end.

What's the difference between PO funding and invoice factoring?

PO funding covers the period before you ship. It pays your supplier so you can build. Factoring covers the period after you ship and invoice. It advances cash against the receivable so you don't wait 60 or 90 days to get paid. They're not either-or; together they close the full cash-conversion cycle, and most growing manufacturers and importers use them as a pair.

Why does PO funding cost more than factoring?

PO money is further from liquidity, which makes it riskier for the lender. With factoring, an invoice already exists and a creditworthy customer has agreed to pay; with PO, the product hasn't even been built yet. That extra risk and longer float time is why PO sits around 2%–3% per 30 days while AR financing on the same deal runs closer to 1%–1.5%.

Do I need strong personal credit to qualify for PO funding?

Not really. PO and AR lenders care most about the creditworthiness of the customer who issued the purchase order, not the owner's personal credit. If you're selling to a blue-chip customer, a national distributor, or a government entity, that anchors the deal. Mike's rule of thumb: bring us the PO, the supplier terms, and your last 12 months of revenue, and we can usually tell you on the first call whether it's workable.

How does government contract financing work?

A lender advances against the value of a federal, state, or local contract or receivable, usually up to 90%, so you can fund production and payroll before the government pays. The structure normally combines a PO line (covers materials and labor before invoice) with an AR line (covers the wait from invoice to payment). As of 2026, the full cycle is typically 60 days PO plus 60 days AR, about 120 days of capital commitment per order.

Can subcontractors on a prime contract get financing?

Yes, and this is one of the most under-served corners of the market. Most traditional factors won't touch a sub-on-a-prime because the account debtor is another contractor rather than the government directly. Serve Funding works with lenders who specifically finance GovCon subcontractors against the prime's commitment, which opens up a category that's a hard no almost everywhere else.

Should I use a GovCon-specialist lender or a generalist?

It depends on the mix. If 100% of what you do is government work, a specialist lender is almost always the right call. They understand assignment of claims, CO procedures, and milestone billing in a way generalists don't. If GovCon is a slice of a mostly commercial book, say 10% to 30%, a generalist AR or ABL lender usually handles the whole portfolio, with the government receivables included.

When is SBA better than alternative financing, and when isn't it?

SBA wins on price and term: prime + 2%–3% over 10 to 25 years is hard to beat. It loses on speed and flexibility. As of 2026, SBA underwriting is 4 to 12 weeks; asset-based lending is 4 to 8 weeks; factoring is 2 to 4 weeks; a revenue-based bridge can fund in days. If your business is clean and profitable and you can wait, do SBA. If you need money sooner or your numbers aren't SBA-ready, alternative financing is the better answer.

Can I get a bridge loan while my SBA loan is underwriting?

Yes, and this is one of the more common SBA pairings we set up. Because SBA takes 4 to 12 weeks, a parallel bridge, usually a revenue-based line, factoring facility, or short-term asset-backed loan, can fund within days to weeks and tide you over until the SBA closes. The bridge gets paid off when the SBA funds, and you only pay interest for the days you actually used the money.

What is Invoice Financing?

Invoice factoring is the practice of selling unpaid B2B invoices to a factor for 75%–95% of face value within 24–48 hours, then receiving the balance (minus a 0.25%–1% fee per invoice) when the customer pays. As of 2026, pricing typically runs Prime + 1–6%, facility sizes range from $250K to $100MM, and the facility scales automatically with sales. Approval looks at your customers' credit rather than your tax return, which is why it works for growing companies whose financials don't yet tell the full story.

How It Works

Invoice factoring is the sale of unpaid B2B invoices to a third party, called a factor, in exchange for most of the money upfront. The factor advances 75–95% of the invoice's face value within a day or two, then sends the balance, minus a small fee, once your customer pays.

The first thing to understand is that this is not a loan. It is the recurring sale of an asset, which means it does not appear as debt on your balance sheet, a meaningful difference if you have bank covenants to protect or are preparing the business for sale.

The line refills as customers pay, so you can keep drawing against new invoices as you upload them. Customers send payments to a separate bank account in your name, called a lockbox, that the factor sweeps. The only operational change for your customers is a slightly different mailing address, which most accounts payable teams handle routinely.

The biggest advantage for growing companies is the underwriting lens. Factors evaluate the credit of your customers rather than your tax returns or owner's personal credit, which is why factoring often works for businesses that have been declined by a bank. Staffing agencies, manufacturers selling to large buyers, and government subcontractors are typical fits.

As of 2026, advance rates run 75–95%, per-invoice fees range from 0.25–1.5%, and facility sizes scale from $250K to $100MM.

The wrong fit: direct-to-consumer businesses, which have no commercial invoices to sell; construction with heavy retainage and concentrated customers; and businesses with less than about $250K of steady invoices, where the economics get thin for both sides.

Quick Facts

Facility / Loan Size	Facility sizes from $250K to $100MM, scaling automatically as your sales grow
Cost of Capital	Advance rates of 75%–95% on eligible invoices; medical AR runs lower (65–70%) because of insurance discounting
Funding Timeline	Funding typically 24–48 hours after invoice upload; full facility setup runs 3–4 weeks
Best For	Staffing agencies with weekly or bi-weekly payroll against 30–60 day client receivables Manufacturers selling to blue-chip OEMs, distributors, or government primes on terms Government subcontractors waiting on assignment-of-claims and CO sign-offs Healthcare practices billing insurance (Medicare, Humana, Blue Cross) on 30–90 day cycles, which uses specialized medical factoring Growing companies that have hit the ceiling on their bank line and need a facility that scales with sales Businesses declined by their bank on owner personal credit or thin profitability where the AR itself is high-quality Companies with loss tax returns but strong recurring invoices to creditworthy customers Bridge facility for a company on the way to a bank-owned ABL in 6–12 months Acquired businesses where the new ownership wants to keep operating debt off the balance sheet

Key Features & Benefits

Facility sizes from $250K to $100MM, scaling automatically as your sales grow
Advance rates of 75%–95% on eligible invoices; medical AR runs lower (65–70%) because of insurance discounting
Pricing: factor fees of 0.25%–1.5% per invoice on the discount-rate model; combined-fee structures run Prime + 1–6% on borrowed funds
Not a debt product on your balance sheet. It's a recurring sale of an asset
Self-liquidating revolving line: as customers pay, the line refills like water in a cup
Lockbox or DACA account set up in your name; lender sweeps customer payments directly
Underwritten primarily on the credit of your customers (account debtors), not on owner personal credit
Funding typically 24–48 hours after invoice upload; full facility setup runs 3–4 weeks
Validity guarantee in lieu of personal guarantee on many deals, so you're only liable if there's fraud or misrepresentation
Selective or full-turn factoring options: you can choose which invoices to fund or run the whole book
Mid-stream facility raises happen fast (often in days) once the lender knows your account debtors
Distressed-company pricing runs higher (mid-teens to 18%+ all-in); cleaner profiles get below 14%, sometimes 12–13%
Bank-owned factors are more rigid but cheaper; non-bank factors are more flexible and slightly pricier

Terms, costs and timelines

Cost	1%-3% per 30 days outstanding
Reserve	10%-20%, released on collection less the fee
Typical single-customer concentration limit	20%-30% of the ledger
Invoice ageing limit	Normally 90 days, occasionally 120
Contract term	12-24 months is standard, 30-90 day terms exist and cost more
Balance sheet treatment	A true sale of the receivable, not debt

How this plays out, with numbers

A wholesale distributor doing roughly $12MM in revenue sells into regional grocery and food-service chains on net 45 terms, though the ledger actually pays closer to 58 days. Receivables run about $2.1MM at any one time. The company is profitable, has been trading nine years, and was declined for a bank line increase because two quarters in the prior year showed compressed margins during a commodity swing. We place a $2MM factoring facility at an 85% advance rate, priced at about 1.4% per 30 days, with the largest customer carved out at a higher concentration limit because that buyer is a national chain with public financials. Documentation takes eight business days, most of it spent obtaining a subordination from the equipment lender holding a blanket lien. On a representative month the company submits $900K of verified invoices and receives about $765K within 48 hours. Those invoices collect over an average of 56 days, so the fee lands near $23K, and the $135K reserve is released as each invoice pays. Annualized across the facility the financing cost runs close to $265K against roughly $2.4MM of gross margin. What the company actually bought is a purchasing position. Paying suppliers inside terms rather than at 45 days earns a 2% early-payment discount on about $7MM of annual purchases, worth roughly $140K, which recovers over half the cost of the facility. Eighteen months later, with two clean years on the books, the same distributor moved onto an asset-based line at a materially lower rate. That is the normal arc. For most companies factoring is a bridge to cheaper capital rather than a permanent arrangement.

A representative structure, sized to a typical file. Details are generalized, we do not publish client specifics.

When this is the wrong answer

Half of being useful is being clear about what does not work. If one of these describes you, the honest path is below, and it may not run through us.

Companies invoicing consumers, or taking payment by card at the point of sale

There is no commercial receivable to sell. What fits that revenue pattern is revenue-based financing, sized against your deposits rather than against an invoice ledger.

Contractors billing on progress or holding retainage

A construction receivable behaves differently from a commercial one. Progress billings are conditional until the work is accepted, retainage is not collectible until the job closes, and pay-when-paid clauses put a third party between you and the money. Most factors will not buy that paper. An asset-based facility built for construction is the better door.

Needing cash before the goods exist

If the money is going to a supplier so an order can be produced, that is purchase order financing. The two are frequently arranged together: PO financing pays the supplier, and the factoring advance retires the PO position the day the invoice is issued.

Companies that also need to borrow against inventory, equipment or property

Factoring only ever addresses the receivable. If there is meaningful collateral elsewhere on the balance sheet, one asset-based line against all of it is usually cheaper per dollar and simpler to administer than a factoring facility plus separate borrowings.

Already inside a factoring agreement with another funder

Most factoring contracts carry a term, a minimum volume commitment, and an early termination fee, and the incumbent holds a first-position UCC on your receivables. Moving is normal and happens constantly, but it is a buyout conversation rather than a new facility. Send us the agreement before you sign anything else.

Invoice Financing - Common Questions

Get answers to the most common questions about invoice financing

Ready to Get Started?

Learn more about Invoice Financing and how it can help your business grow. Schedule a consultation with one of our funding experts today.

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What is Invoice Financing?

How It Works

Quick Facts

Key Features & Benefits

Terms, costs and timelines

How this plays out, with numbers

When this is the wrong answer

Invoice Financing - Common Questions

Is factoring a loan? Does it put debt on my balance sheet?

What is the difference between recourse and non-recourse factoring?

Can I factor a single invoice instead of my whole ledger?

Which invoices will a factor refuse to buy?

How quickly can a facility be in place?

What is invoice factoring?

How quickly can I get cash?

Can I get factoring if my tax return shows a loss?

Why is factoring better than a bank line of credit?

Do I have to factor all my invoices?

Can a working capital loan bridge to a cheaper facility later?

What is the difference between invoice factoring and asset-based lending?

Will my customers know I am factoring my invoices?

How much does invoice factoring actually cost on an annual basis?

Does my personal credit score matter for invoice factoring?

Does invoice factoring work for construction companies?

What is the difference between asset-based lending and factoring?

Is there a minimum deal size for asset-based lending?

What is purchase order (PO) funding and how does it work?

What's the difference between PO funding and invoice factoring?

Why does PO funding cost more than factoring?

Do I need strong personal credit to qualify for PO funding?

How does government contract financing work?

Can subcontractors on a prime contract get financing?

Should I use a GovCon-specialist lender or a generalist?

When is SBA better than alternative financing, and when isn't it?

Can I get a bridge loan while my SBA loan is underwriting?

Ready to Get Started?

See It In Action

Why AR Factoring Costs Range from 1% to 4%+ Per Month

How Invoice Factoring Actually Works

We're Industry-Agnostic: Who We Fund

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