What is invoice factoring?

Invoice factoring is the sale of unpaid B2B invoices to a factoring company at a discount, in exchange for immediate cash. The factor advances most of the invoice value upfront, then collects payment from the customer directly.

How much does invoice factoring cost?

The factor fee typically runs 1% to 5% of invoice value per 30-day period, with an industry average around 2.5%. A 2% fee on a 30-day invoice is roughly a 26% annualized cost, so the fee should always be annualized before comparing it to a loan.

How much of my invoice do I get upfront?

The advance rate is typically 70% to 90% of invoice value, paid within about 24 to 48 hours of setup. The remainder, minus the factor fee, is released once the customer pays.

Does factoring affect my credit?

Factoring is an asset sale rather than a loan, so it does not add debt to the balance sheet. Approval leans more on the creditworthiness of your customers than on your own credit score.

Invoice Factoring: How It Works, Real Costs, Who It Fits

Invoice Factoring

Reviewed and updated 2026-05-22 · Figures are dated industry references, not offers of credit

Invoice factoring converts unpaid B2B invoices into immediate cash by selling them to a factor at a discount. The factor advances roughly 70% to 90% of invoice value upfront — usually within typically 24-48 hours after setup — and charges a fee of 1% to 5% of invoice value per 30-day period. Because it is an asset sale rather than a loan, it adds no debt to your balance sheet.

How factoring works

A business delivers work and invoices its customer on normal net-30, net-60, or net-90 terms. Instead of waiting out that window, it sells the invoice to a factoring company. The factor advances most of the face value immediately, then collects the full amount from the customer when the invoice comes due.

Once the customer pays, the factor releases the held-back reserve minus its fee. The fee is a flat percentage of invoice value, not an interest rate — which is exactly why it must be annualized before it can be fairly compared with a loan. A fee that looks small per invoice can be a substantial annualized cost of money.

A worked example

Factor a 10,000 invoice at a 90% advance rate and a 2% fee. You receive 9,000 upfront. When your customer pays the full 10,000, the factor keeps 200 (the 2% fee) and releases the remaining 800. Your total cost is 200 — but on a 30-day invoice, that is roughly a 26% annualized cost.

Who factoring fits

B2B businesses waiting 30-90 days on customer payments
Companies whose customers have stronger credit than they do
Businesses needing to smooth cash flow without taking on debt

When factoring is the wrong choice

The business sells to consumers, not other businesses — there are no invoices to factor
Margins are too thin to absorb the factoring discount
The customer base is concentrated in one or two slow payers

How PMF fits in

Premier Merchant Funding, which publishes this site, arranges invoice factoring among other commercial finance products. If factoring suits your receivables and customer base, PMF can help place it. This guide is written to be accurate and useful on its own terms, whoever you choose to work with.

Peter FeiermanTeam Leader, Premier Merchant Funding

Peter leads commercial finance teams at Premier Merchant Funding, working day to day across merchant cash advances, invoice factoring, SBA lending, and commercial real estate financing. He writes here to explain how these products actually work — including when they are the wrong choice.