Invoice factoring for small businesses
Invoice factoring means selling unpaid invoices to a factor for cash now, instead of waiting for customers to pay.
15% to 40%
Pricing as quoted by lenders and funders in our network for invoice factoring and A/R financing, as of September 2026.1,5
It suits businesses that bill other businesses and wait on payment terms, such as trucking, staffing, manufacturing and wholesale. The factor usually collects from your customers, and what it offers depends heavily on how reliably they pay.
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Invoice factoring is a sale of your invoices, not a loan. The factor's cost is usually a discount or fee on each invoice rather than an interest rate, and it often grows the longer your customer takes to pay. Compare offers by total cost: what you receive for each invoice against its full value.
How invoice factoring works
You do the work and invoice your business customer as usual.
You sell the invoice to a factor, which pays you part of its value now. This is called the advance.
Your customer pays the factor directly, usually after being told the invoice has been sold.
When the customer pays, the factor sends you the rest of the invoice, less its fees.
With recourse factoring, if the customer doesn't pay, you buy the invoice back or replace it. With non-recourse factoring, the factor takes on some of that risk, usually for a higher fee.
When it fits, and when it doesn't
Where it fits
- You invoice other businesses and wait weeks or months to be paid.
- Your customers pay reliably, even if your own credit or time in business is limited.
- You're growing and need cash to take on more work before earlier invoices are paid.
- You'd like someone else to handle collections.
Reasons to think twice
- Your customers will usually know, because they pay the factor.
- Fees add up, especially when customers pay slowly.
- With recourse factoring, you still carry the risk of customers who never pay.
- Some agreements require a minimum volume or a long commitment, or ask you to factor all your invoices. Read the terms.
- You sell mainly to consumers. Factoring works with invoices to businesses.
What funders usually look at
- How creditworthy your customers are, and how they pay
- The invoices themselves: completed work, clear terms and no disputes
- How much of your revenue comes from one or two customers
- Whether another lender already has a claim on your receivables
- Your own business's history and credit, which many factors weigh less than your customers'
What they weigh, and how much, differs from one to the next and by product. No single number decides it.
Documents you may be asked for
- An accounts receivable aging report
- Copies of the invoices you want to sell, with proof of delivery or completed work
- A list of your customers and their contact details
- Recent business bank statements
- Details of any existing financing secured by your receivables
Each lender or funder tells you what it needs for your application, and you can upload documents in your 37Lend account.
Also called
- Factoring
- Accounts receivable factoring
- Freight factoring (for trucking)
- Debt factoring
- Selling invoices
Compare with
A/R financing
Accounts receivable financing is borrowing against your outstanding invoices while you keep them and collect from customers.
Line of credit
A business line of credit lets you draw funds as you need them, up to a limit, and pay interest only on what you use.
Purchase of receivables
A purchase of receivables is not a loan: a funder buys a portion of your future receivables at a discount and collects them.
Invoice factoring questions
What does invoice factoring cost?
Lenders and funders in our network quote invoice factoring and A/R financing at 15% to 40%, as of September 2026. That is pricing as quoted, not an interest rate, an APR or an offer: factoring is a sale of your invoices, and a factor's fee often grows the longer your customer takes to pay. What you're offered depends on your customers and invoices, your own business's profile, and the factor, so compare offers by total cost: what you receive for each invoice against its full value.
Is invoice factoring a loan?
No. Factoring is a sale: you sell your unpaid invoices to a factor, which pays you part of their value now and the rest, less fees, when your customers pay. Because it isn't a loan, the cost is usually a discount or fee on each invoice rather than an interest rate. A/R financing, by contrast, is a loan secured by your invoices.
What's the difference between invoice factoring and A/R financing?
With factoring, you sell the invoices, and the factor usually collects from your customers. With A/R financing, you borrow against your invoices, keep them and collect from customers yourself. Factoring leans on your customers' credit; A/R financing usually looks harder at your own business's finances.
Will my customers know I'm factoring invoices?
Usually, yes. In most factoring arrangements your customers are told to pay the factor. Some factors offer arrangements where customers are not told, often with stricter requirements. Ask each factor how it contacts your customers.
What's the difference between recourse and non-recourse factoring?
With recourse factoring, if a customer doesn't pay, you buy back or replace the invoice. With non-recourse factoring, the factor absorbs some losses, often only when a customer can't pay because it is insolvent, and it usually charges more. Read which risks the agreement covers.
Can I factor invoices with bad credit?
Often, because factors weigh your customers' creditworthiness heavily, not only yours. Each factor sets its own standards, and existing liens or unpaid taxes can matter. Checking your options with 37Lend uses a soft credit inquiry, which doesn't affect your credit score.
Want to talk it through first? Book a call with a funding advisor.