No. Invoice factoring is the sale of an account receivable to a third-party factoring company in exchange for an immediate cash advance — typically 70-90% of invoice face value. The factor collects payment from your customer directly. There is no debt on your balance sheet, no fixed repayment schedule, and no APR — just a factoring fee.
Invoice factoring is structured as the sale of an asset (your accounts receivable), not as a borrowing arrangement. The factoring company purchases the invoice for less than face value; it then owns the right to collect from your customer. Because the transaction is a sale, no debt is added to your balance sheet — the AR asset is simply replaced with cash (minus the factoring fee). Banking regulators and accounting standards (ASC 860 in US GAAP) treat factoring as a sale when key conditions are met, not as a financing arrangement. Reference: SEC SAB 99 / ASC 860 for the technical accounting treatment.
Recourse factoring: if your customer doesn't pay, you owe the factor. Cheaper (lower fee) but you carry the credit risk. Non-recourse factoring: the factor absorbs the customer-default risk. More expensive but cleaner. Many factoring agreements are nominally non-recourse but exclude specific scenarios (customer dispute, fraud) — read the contract. The Commercial Finance Association publishes industry guidance.
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Invoice factoring fits B2B businesses with creditworthy commercial customers + slow-pay cycles (30-90 days). Common verticals: trucking, staffing, manufacturing, professional services with enterprise customers. NOT a fit for B2C businesses or businesses with concentrated customer risk. Always run the math: a 3% factoring fee per 30 days on a customer that pays in 60 days = 6% off the invoice = ~36% effective APR on the cash advance. Worth it for fast cash; expensive vs a bank line of credit.