Invoice factoring: process, costs and questions to ask.

Businesses that invoice other businesses may need cash before customers pay. Invoice factoring can provide access to part of the value of eligible receivables, subject to the factor's review and agreement.

What is invoice factoring?

Factoring typically involves selling eligible unpaid invoices to a financing provider called a factor. The agreement specifies the initial advance, any reserve, customer-payment instructions and fees. Accounting treatment and the seller's obligations depend on the structure; do not assume that every arrangement removes all debt, guarantees or repayment exposure.

How the process works

1. You deliver the goods or services and issue an invoice.
2. The factor reviews the invoices, customers and business, including disputes, payment history or existing liens where relevant.
3. If approved, you review the advance, reserve, fees, payment instructions and other agreement terms.
4. The customer pays according to the agreed collection arrangement.
5. The factor settles any remaining balance after applicable charges and adjustments.

Illustrative example, not a PMF offer

Suppose a $50,000 eligible invoice has a hypothetical 90% advance. The initial advance would be $45,000 and the reserve $5,000 before fees or adjustments. The amount released later depends on collection and the agreement. These figures demonstrate the arithmetic only; they are not a quoted advance rate, timeline or completed client transaction.

Which businesses may be a fit?

Staffing firms, freight companies, manufacturers, distributors and other B2B service businesses may explore factoring when receivables create a cash-flow gap. The quality of the customer and invoice matters, but providers may also evaluate your business, documentation, liens and contractual obligations. Retail sales collected at checkout generally present a different financing need.

Factoring or a business line of credit?

A business line of credit is a credit facility with its own underwriting and repayment conditions. Factoring centers on eligible receivables and collection arrangements. Compare availability, total cost, customer contact and obligations under each structure. If you need to pay suppliers before fulfilling an order, review purchase order financing separately.

Recourse and non-recourse factoring

A recourse agreement can require the business to repurchase or replace unpaid invoices under specified conditions. Non-recourse protection is defined by the contract and may cover only certain events. It does not necessarily cover disputes, returns, fraud or every reason a customer fails to pay. Read the exclusions and obligations rather than relying on the label alone.

Compare the full cost

Ask how the fee is calculated and how long it accrues. Review minimum-volume requirements, unused-facility charges, verification or wire fees, reserves, termination provisions and costs that change when invoices age. Compare projected net proceeds under both expected and delayed customer payment.

Questions before proceeding

• Which invoices are eligible, and what information is required?
• Who contacts customers and collects payments?
• What happens if an invoice is disputed or unpaid?
• Are liens, guarantees, minimums or exclusivity required?
• What are the full fees and exit conditions?
• Does existing financing restrict a new receivables arrangement?

PMF's broader funding options include financing through PMF companies such as Aspire Lending, in-house syndicated deals using PMF capital, and brokered financing. The funding source and structure depend on the program and transaction. A funding conversation does not establish that PMF directly provides a specific factoring product.

Approval, amounts, pricing, fees and timing depend on the program, financing provider and application.