Invoice factoring, otherwise known as invoice financing, is a process by which lenders will advance money to small businesses on the basis of their as-yet unpaid invoices. In practice, the invoice factoring company will do a financial risk-assessment on the outstanding accounts receivable and determine an amount they are willing to lend. Once finalized, the customer is notified, and the business will receive a cash advance. Invoice financing is essentially a way for businesses to invest in their operation immediately without having to wait around for customers to pay. Typical uses for funds include to pay employees or suppliers, buy equipment, or expand the business.

Depending on the business and its industry, the advance will be worth somewhere between 70% and 90% of the outstanding invoice total. The advance will need to be repaid within a pre-determined length of time. In some cases, this may be 30 days, while in others, it may be six months. Regardless of the term of the advance, for every month that the advance goes unpaid, a factor fee is incurred upon the total. Usually, this amounts to an additional 3%. Because the percent is charged monthly, and the repayment terms are relatively short, invoice factoring loans generally have very high APRs. However, if you have a plan in place to pay early, and are sure the loan will generate revenue, that can be an ideal option for certain borrowers. 

This process is part of what is called Recourse Factoring. In Non-Recourse Factoring, which is practiced outside of the United States, no factor fee may be added. As a result, non-recourse factors will usually provide a smaller advance and charge greater fees.

Below we've compiled a list of our partners we feel offer the best invoice factoring services.

Top 3 Best Invoice Factoring

Our Partner
9.2 / 10

FundBox is a company that specializes in invoice factoring. We recommend them mainly because of their more flexible approach, with a choice between 12 and 24 week terms. Instead of flat advance maximums and interest fees, each account is customized based on the business’ credit limit and judged sustainability. As time goes on, these factors are periodically reviewed in order to assess policy changes. 

Our Partner
8.9 / 10

Fundera is an ideal choice if borrowers are looking for a short term. The company offers its invoice financing services to small businesses that have been in operation for more than three months, and generate over $50,000 in revenue. If granted invoice factoring, the maximum advance amount will be between 50 and 90% of the total amount. For every month that the advance goes unpaid, Fundera will add a 3% factor fee. This will continue throughout the term, which is often set for 12 weeks. 

Our Partner
8.9 / 10

FastPay’s FastLane program provides invoice factoring to small business applicants that are not sole proprietorships. FastPay mandates that, for the first transaction, a company’s invoice advance must total between $5,000 and $100,000. For all other exchanges, the minimum is removed, while the maximum may be extended after the first four months. Whatever the amount, a 3% interest fee is attached the total every 30 days. Small businesses may repay the advance within 30 and 120 days. 

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