What is invoice factoring?

How invoice factoring works

The mechanics in five steps:

1. Your business invoices a commercial customer for goods or services delivered.
2. Instead of waiting 30-90 days for the customer to pay, you sell the invoice to a factoring company.
3. The factor advances you 70-90% of the invoice face value within 1-3 business days.
4. Your customer pays the factor directly when the invoice comes due.
5. The factor remits the remaining balance (10-30%) to you, minus the factoring fee (typically 1-5% per 30 days the invoice was outstanding).

What it costs

Factoring fees are typically structured as a percentage of invoice face value per 30-day period the invoice is outstanding. Typical ranges: 1% per 30 days for premium customers + low-risk industries; 3-5% per 30 days for higher-risk customers or longer payment cycles. The effective annualized cost compounds quickly on slow-paying invoices — a 3% fee on a customer that pays in 60 days = 6% off the invoice = ~36% effective APR.

Who qualifies

Factoring underwriting flips the usual credit script: the factor evaluates your customer's creditworthiness, not yours. Typical requirements:

• B2B (business-to-business) invoices only — consumer receivables typically ineligible
• Creditworthy commercial customers (the factor will run credit on your top customers)
• Clean accounts receivable — no existing liens on AR (UCC-1 search)
• Invoices for goods or services already delivered, not progress billings
• No minimum owner FICO at most factors — 500+ accepted, sometimes lower

When invoice factoring fits

Factoring shines in B2B businesses with: (a) slow-paying commercial customers (30-90 day cycles), (b) growth outpacing cash flow, (c) AR concentrated in creditworthy enterprises, (d) thin owner credit that blocks bank financing. Common verticals: trucking, staffing, manufacturing, wholesale distribution, professional services with enterprise customers. Because factoring underwrites the customer's creditworthiness rather than the business owner's, it stays accessible to sub-680 FICO applicants who'd be declined for a conventional bank loan on credit score alone.

See our full comparison of the best invoice factoring companies in 2026 for specific factors, advance rates, and fee structures side by side. If this fits your situation, apply with ClearValue Lending — your file routes to the funding partners best matched to it.