No. Factoring is generally a sale of your receivables at a discount. You are paid early on money customers already owe, rather than borrowing against future sales.

Will my customers know I factor?

Often yes, since payment is usually directed to an account the factor controls. Ask how notification works so you can tell key customers in advance.

Can a restaurant or retail shop use factoring?

No. Factoring needs invoices owed by businesses or government customers. Businesses paid at the point of sale by consumers should look at revenue-based options instead.

What if my customer pays late?

The fee can increase the longer an invoice stays open, and the agreement explains what happens if a customer never pays. Read those terms closely before signing.

Does my credit score matter?

Your customers' payment strength matters most, but your own file is still reviewed. MFE considers scores from 500, and stronger credit usually means better terms.

Invoice Factoring: Turn Unpaid B2B Invoices Into Cash

The short answer

Invoice factoring gives you an advance on unpaid invoices owed by your business or government customers. The factor pays most of the invoice value up front, holds back a reserve, and releases that reserve minus its fee when your customer pays. It fits companies with real, undisputed invoices on terms usually between net 30 and net 90, and it does not fit businesses that consumers pay at the point of sale.

How factoring works, step by step

You deliver the work or goods and send the invoice as usual.
You submit the invoice to the factor.
The factor advances a large share of the invoice value, often within days.
Your customer pays the invoice on its normal terms, typically to an account the factor controls.
The factor releases the reserve it held back, minus its fee.

Notice what is missing: a fixed loan payment. You are not borrowing against your future sales. You are getting paid early on sales you already made.

The advance, the reserve and the fee

Three pieces decide what you actually receive:

Advance rate: the share paid up front, such as 80% to 90% of the invoice.
Reserve: the remainder held until the customer pays.
Factoring fee: often a percentage that can grow the longer the invoice stays unpaid.

Because the fee can rise with time, a customer who pays in 35 days costs less to factor than one who stretches to 85. Know your customers' real payment habits before you estimate cost.

Check what your business qualifies for

Merchant Fund Express reviews invoice factoring requests from $5,000 to $5,000,000. Scores from 500 are considered, and same-day decisions are common on complete files.

Check funding options with Merchant Fund Express

Who it fits, and who it does not

Common fits: staffing agencies that pay workers weekly but bill clients monthly, wholesalers and distributors selling to retailers, B2B service firms and freight carriers billing shippers. The strength of your customers matters a great deal, because their payment is what repays the advance.

Does not fit: restaurants, salons, retail shops and other businesses that consumers pay at the register. There is no invoice to factor. Those businesses usually look at a merchant cash advance or revenue-based financing instead. Disputed invoices, invoices for work not yet done and invoices to related companies also do not qualify.

Note that many funders restrict long-haul trucking for some products, so carriers should ask early.

Worked example: $50,000 in net 60 invoices

Illustrative example. These figures are illustrations built on stated assumptions, not offers. Real pricing depends on the file MFE reviews.

Assumptions: a staffing agency factors $50,000 of invoices owed by two regional hospitals on net 60 terms. The advance rate is 85%, and the fee is assumed at 3% of the invoice value for payment within 60 days.

Item	Amount
Invoice value	$50,000
Advance paid up front (85%)	$42,500
Reserve held (15%)	$7,500
Factoring fee (3%)	$1,500
Reserve released after customer pays ($7,500 - $1,500)	$6,000
Total net cash received	$48,500
Repayment source	Customers pay the $50,000 invoices

The agency gets $42,500 roughly two months early and pays $1,500 for that speed. If the hospitals paid in 75 days instead and the fee stepped up, the cost would rise, which is why payment history matters.

Funding brings customers. Is your website ready for them?

Factoring works best when you are winning steady B2B contracts, and procurement teams check your website before they add a vendor. A clear services page, licenses or certifications and a working contact form help you land the accounts you will later factor. Cheap Cheap Websites builds professional sites from $399, with Website Care at $30/month.

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What to prepare

An accounts receivable aging report
Copies of the invoices you want to factor, plus proof the work was delivered
A list of customers with contact details
3 to 4 months of business bank statements, owner ID and a voided check

You can start the process on the MFE invoice factoring page.

When another option is better

If you only have one late invoice a year, factoring is probably more structure than you need; a line of credit may cover it at lower cost. If your customers would react badly to paying a third party, ask about how notification is handled before you sign. And if your margins are thin, run the fee against your profit per job. A 3% fee on a job with 8% margin takes a big share of the profit.

Related funding guides

Business line of credit Working capital loans Merchant cash advance How much can my business borrow Invoice factoring at Merchant Fund Express

Cheap Cheap Websites builds websites. It does not lend or make funding decisions. Funding is offered by our funding partner, Merchant Fund Express, and every request is subject to its review and approval. Figures on this page are illustrations, not offers. Updated October 15, 2026.

Invoice factoring turns net 60 into this week