Factoring, receivables lines and purchase order financing that turn unpaid invoices and confirmed orders into cash.
Invoice factoring turns unpaid invoices into cash now. A factor advances a share of each approved invoice, commonly in the range of seventy to ninety percent, collects from the customer, and remits the balance less its fee when the invoice is paid. Because the factor relies mainly on the customer's credit, factoring is available to young and fast-growing businesses whose own balance sheet would not support a bank line.
Purchase order financing solves the step before: it pays a supplier so the business can fill a confirmed order, and is usually repaid by factoring the resulting invoice. Receivables lines from banks and asset-based lenders work on the same collateral at lower cost once the business qualifies. These guides explain advance rates, fee structures, recourse and non-recourse, customer notification, and when each structure fits.
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Frequently asked questions
How does invoice factoring work?
The business sells or pledges approved invoices to a factor, which advances a share of their value, commonly seventy to ninety percent, usually within days. The customer pays the factor, and the factor releases the remaining balance less its fee. Fees are commonly quoted per period the invoice stays open.
What is the difference between factoring and PO financing?
Factoring advances against invoices for work already delivered. Purchase order financing pays a supplier before delivery so the business can fulfill a confirmed order from a creditworthy customer. Once the goods are delivered and invoiced, the PO financing is commonly repaid through factoring.
Will my customers know I am factoring?
In most factoring arrangements the customer is told to pay the factor, so yes. Some providers offer non-notification arrangements for stronger businesses, and receivables lines from banks typically do not involve the customer. Professional factors handle collections courteously, but the relationship question is worth discussing upfront.