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How Invoice Factoring Works: Turn Unpaid Invoices Into Cash
How invoice factoring works in plain English: you convert eligible unpaid B2B invoices into working cash instead of waiting on customer payment terms.
What invoice factoring is
Factoring (accounts receivable financing) advances cash against invoices you have already earned. It is not a traditional bank loan. Parent page: accounts receivable.
How invoice factoring works step-by-step
- You deliver goods/services and issue an invoice.
- You submit the invoice to a factoring partner.
- The partner advances a percentage of face value (contract-specific).
- Your customer pays per the remittance setup.
- Fees/reserves settle; you receive the residual if applicable.
Recourse vs non-recourse
- Recourse: You may remain responsible if the customer does not pay.
- Non-recourse: Partner assumes more customer-credit risk (usually narrower eligibility / different pricing).
Read contracts carefully — labels vary.
What it typically costs
Pricing is often a factor fee / discount rate, not a consumer-style APR. Advance rates and reserves vary. Illustrative only — no invented percentages.
Who it fits best
B2B sellers with longer payment terms and creditworthy customers. Pure B2C businesses with no invoices usually need other products.
Invoice factoring vs nearby options
- Line of credit — revolving, not invoice-triggered
- Merchant cash advance — sales-based advance (contrast only)
- Term loans — fixed lump
- SBA loans — slower traditional path
Docs & readiness checklist
A/R aging, sample invoices, customer list, entity docs, banking history.
How a marketplace helps
Loanable matches factoring and adjacent funding partners. Loanable is not the lender. How it works → Apply.
FAQ
What is invoice factoring?
Advancing cash against unpaid B2B invoices.
How does invoice financing differ?
Search language overlaps; contracts define purchase vs loan-like structures.
Is factoring only for trucking?
No — trucking is a common example industry, not the only fit.
Will my customers know?
Depends on disclosed vs undisclosed program design.
Next step
Start with accounts receivable, then apply.