Your Customers Pay in 60 Days. Payroll Is Due Friday. Here's How Invoice Factoring Closes the Gap
So, how does invoice factoring work? You sell us the invoices your business customers haven’t paid yet. Within a day or so, we advance most of what they’re worth, and then we collect from those customers ourselves. When they pay, we send you the balance minus our fee. Nothing gets borrowed, so no new debt lands on your books. You’re getting your own money, just sooner.
The idea is simple enough. The detail is where we see owners get stuck, so below we walk through it the way we would with a company on the phone: one step at a time, with the numbers that actually matter. Rather hear it from a person? Our invoice factoring team will run your own invoices through it with you.
How Does Invoice Factoring Work, Step by Step?
There are five steps. You apply once, then send us invoices for work you’ve already delivered. We advance part of their value and collect from your customers, and when they pay, the remaining reserve comes back to you minus the factoring fee. At Seacoast, that advance runs up to 90% of the invoice value, and it usually lands within 24 hours of you submitting the invoices.
In practice, it goes like this.
- Apply once. We ask for basic financial information and your customer list. Honestly, we spend as much time on your customers’ payment history as on yours, since they’re the ones paying the invoices.
- Submit invoices. They have to be for goods or services you’ve finished and billed to another business. Work still in progress doesn’t qualify.
- Receive the advance. After approval, we wire up to 90% of the invoice value. The rest stays with us as a reserve.
- Your customer pays the factor. We tell them to send payment to us, and we handle the follow-up ourselves, professionally.
- Collect the reserve. Once the invoice is paid in full, we release the reserve to you, less the fee.
Expect the first funding to be slightly slower, because the account has to be set up. Every batch after that moves quickly.
What the Advance, Reserve and Fee Look Like in Real Numbers
A worked example beats a definition. Say, for illustration, you bill a distributor $100,000 on 60-day terms.
At a 90% advance, $90,000 hits your account about a day after you send us the invoice. We hold the other $10,000 in reserve. When the distributor pays the full $100,000, that reserve comes back to you less the factoring fee. Call the fee $2,000. You’d get $8,000 back, which puts you at $98,000 total on an invoice you’d otherwise be waiting two months to collect.
What sets the fee? It’s priced on the invoices, not on a loan balance. Mostly it follows how long your customers take to pay and how reliable they are, and creditworthy customers who pay fast generally cost less. Volume counts too. A company sending a steady flow of invoices every month is a different file from one factoring a single large invoice once a year.
Whoever you talk to, get the full fee schedule in writing before you sign, setup, and minimum-volume charges included. We show you ours up front. Surprises are what sour these relationships.
Is Invoice Factoring a Loan?
No. Invoice factoring is the sale of an asset you already own- your receivables- so it doesn’t add debt to your balance sheet, and there is no repayment schedule. Approval leans on your customers’ credit more than yours, which is why young or fast-growing companies often qualify when a bank says not yet.
That difference shows up in practice. A bank line is sized to your financial statements and comes with covenants. A factoring facility is sized to your receivables, so it grows as your sales grow. When a new contract doubles your invoicing, the funding available doubles with it, without going back to renegotiate.
Accounts receivable financing is the term you’ll hear alongside factoring. The two are often used interchangeably. Strictly speaking, factoring sells the invoices and the factor collects, while some receivables financing uses the invoices as collateral for a loan and leaves collections with you.
Which Businesses Get the Most Out of Factoring
Factoring fits business-to-business companies that wait 30, 60, or even 90 days to be paid while their own costs are due now. We work with middle-market B2B companies, usually with revenue between $1 million and $200 million, in distribution, food and beverage, manufacturing, staffing and service businesses.
The pressure looks different in each one. A staffing firm makes payroll every week but bills clients monthly, which is why factoring for staffing companies is built around payroll cycles. A plant that lands a large order has to buy raw materials long before the first invoice is paid, and invoice factoring for manufacturers funds that stretch. Consulting, IT, and other professional firms carry the same gap between delivering the work and collecting for it, and factoring for business services firms follows their billing cycle.
A common thread runs through the calls we get. Sales are healthy, customers are reliable, and the bank still isn’t moving fast enough. Seasonal swings, supply chain delays, and a lender that has pulled back are the usual triggers.
Recourse, Notification and the Fine Print Worth Reading
Two terms change how a factoring agreement works for you, and both are worth asking about up front.
Recourse decides who absorbs the loss if a customer never pays. Under recourse factoring, you buy back the unpaid invoice. Under non-recourse factoring, the factor takes that credit risk for the reasons the contract lists, usually customer insolvency, and charges for carrying it.
Notification means your customers are told to pay the factor. Some owners worry this will hurt the relationship. In our experience, it rarely does when the factor communicates professionally.
Beyond those two, read for the term length, how the reserve is released, and what happens if you stop factoring early. A good agreement is short on surprises.
Talk to a Funding Partner Who Knows Your Industry
You won’t get passed around. Whoever picks up the phone can make the call, and between us, we’ve put in more than 30 years in factoring and asset-based lending. Not sure whether to factor or ride it out until your next payment run? Send us a few recent invoices and your customer list. We’ll come back with what an advance would look like for you. Want the wider view first? Seacoast Business Funding covers our other working capital options too.
Invoice Factoring Questions Our Clients Ask
How fast can I get funded?
Usually within 24 hours of sending us invoices, once your account is set up. Setup takes longer, so get it done while cash is still comfortable.
Will my customers know I am factoring?
They will. We ask them to pay us instead of you, and we keep those conversations professional and low-key.
Do I need good credit to qualify?
Not as much as most owners expect. It’s your customers who pay the invoices, so how they pay is what we look at hardest. We’ll still go through your own records. A short history or a thin balance sheet won’t sink you by itself, though.
Can I factor only some of my invoices?
Often, yes. Plenty of our clients factor just the customers on the longest terms and handle the quick payers themselves. Tell us how your receivables split and we’ll suggest a setup.
What happens if a customer pays late?
You’ll usually pay a bit more, because the fee runs with how long the invoice sits open. Nonpayment is another matter. Who absorbs that loss comes down to the recourse terms in your agreement, so ask us about both before you sign anything.
How is factoring different from a business line of credit?
A line of credit is a loan, sized to your financials, with repayment and covenants attached. With factoring, you’re selling your receivables, so the amount follows your sales. Invoice more and it grows, and no debt gets added.
