Invoice Factoring FAQs

Find the answers to your questions and definitions about invoice factoring, factoring companies, and accounts receivable financing in our invoice factoring FAQ page.

What Is Invoice Factoring?

Invoice factoring is a cash-flow solution in which a business sells its receivables (invoices) to a factoring company at a discount in exchange for immediate working capital. Businesses use invoice factoring to improve their available cash for use towards payroll, expenses, or growth.

How Does Invoice Factoring Work?

Once you choose a factoring company that meets your business needs, the process of factoring is simple.

  1. When you are ready to fund, send your invoices to the factoring company.
  2. The factoring company advances you a percentage of the invoice value.
  3. Your customer pays the invoice to the factoring company on the agreed-upon terms.
  4. The factoring company pays you the remaining invoice amount less a fee for the service.

What Does Invoice Factoring Cost?

How much a factoring company charges is based on the monthly volume of invoicing sold to a factoring company. As your monthly sales improve, and you factor a higher volume of invoices, the factoring fees will go down.

Try out Scale Funding’s invoice factoring calculator to learn what the costs of factoring might be for your company.

How Are Factoring Rates Calculated?

There are three common factoring rate types; flat, tiered, and prime plus. Factoring rates are calculated based on several variables including monthly invoicing volume, industry, and customer payment trends. See examples of factoring rates here.

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

With recourse factoring, any unpaid invoice that is uncollectible or in dispute is recoursed or sold back to the factoring client. With non-recourse factoring, the factoring company takes on the full liability of the invoice. Typically the advance rate is lower, and the factoring fee is much higher with non-recourse factoring.

What’s Your Advance Rate?

We typically advance 90 percent of the invoice amount.

Does Invoice Factoring Create Additional Debt?

Unlike a loan, factoring does not create additional debt on your balance sheet.

Do I Have to Factor All of My Invoices?

No! With Scale Funding, you can factor some or all of your customers. For the customers you choose to factor, all invoices should be sent to the factoring company.

How Long Does it Take to Get Approved & Setup for Invoice Factoring?

Once you speak with one of our factoring specialists and discuss your situation and cash needs, you will receive an approval in as little as 15 minutes. Our simple setup process will have you ready for your initial funding in as little as three business days. After your initial funding, we will fund you the same day we receive your invoices.

How to Qualify for Factoring?

Scale Funding provides factoring to companies providing business-to-business sales and services. You must bill your customers on net terms and invoice at least $50,000 a month on average.

What Are Your Terms? 

It is essential to review the terms before signing on with an invoice factoring company. As a customer, flexible terms are ideal.

Most factoring companies only offer a one-year contract agreement. At Scale Funding, we give you options. Our contracts are month-to-month, so you are not locked into a long term agreement. There is also the option of long-term contracts, which can include price breaks or flexible rates.

How Do You Get Started With Factoring? 

It first begins with an agreement between a business and a factoring company. The business operates as usual, and once the work is complete, creates an invoice.

Instead of sending the invoice to its customer, the invoice is submitted to the factoring company.

The factoring company purchases the invoice and directly deposits the advance into the business’s bank account. In most cases, the advance is around 90 percent. Once the customer pays the invoice, the invoice factoring company pays the business the remaining amount of the invoice, less a fee.

Does Invoice Factoring Hurt My Business’s Credit Score? 

The answer is no. It does not hurt your credit score because invoice factoring does not incur any debt for your company.  In fact, factoring can help improve your credit score as you will have the cash available to meet your regular financial obligations.

Can I Factor Past Due Invoices? 

In most cases, Scale Funding will allow you to factor invoices up to 45 days old.

 How are Funds Transferred to My Business Account? 

Scale Funding provides a variety of options on how funds are transferred. You can get funds wired directly to your company bank account, receive an electronic payment via ACH, or have a check mailed.

How Do My Customers Know Where to Send Their Payments? 

Your customers will receive a Notice of Assignment (NOA). What an NOA does is notifies your customer of four key elements.

  1. A factoring (finance) company will be managing your receivables.
  2. The finance company has the right to all factored receivables
  3. The remittance address for payments.
  4. Other notable legal matters.

 Can a Start-Up Company Qualify for Factoring Services? 

Yes! Often start-up companies cannot qualify for a bank loan or line of credit, so going with a factoring company is ideal.

Factoring companies focus on your customer’s credit, not yours. Choosing a top factoring company is a great way to gain working capital and grow your business.

Will My Customers Think My Business is in Poor Financial Standing if I Factor?

Invoice factoring is well known as a form of financing within the business community. When a company factors its invoices, it strengthens its financial position. This improves their ability to serve their customers in an efficient manner.

How is Factoring Different From a Bank Loan? 

invoice factoring FAQs - common questions about invoice factoring answered

Qualifying and receiving approval for factoring is a fast and straightforward process that takes only a matter of days. One of the critical differences between factoring and a loan is the credit standards. With a loan, the bank bases approval on the client’s credit. Factoring companies determine approval based on the credit and payment history of the client’s customer.

Factoring is not a loan, but rather the sale of an asset (open invoices). There is no interest charge with factoring. The cost of factoring is known as the fee. Factoring fees are calculated by how long it takes your customer to pay the invoice.

How Long Do I Have to Factor? 

There is no long-term contract. We offer month-to-month financing programs based on your business needs.

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