Accounts receivable financing, also called invoice factoring, is a type of business funding in which companies sell their unpaid invoices to a factoring company at a discounted rate in exchange for immediate cash. For example, if you have an invoice for $1,000 that will take your customer 30 days to pay, you can factor the invoice and receive $800 in cash upfront. The factoring company will then collect payment from your customer and remit the remaining balance to you, minus a factoring fee.

Factoring fees are typically based on the invoice’s net terms, which is the length of time your customer has to pay the invoice. They can range from 1-5% of the invoice total, depending on the industry and other factors. However, you can often negotiate lower rates if you have a strong relationship with your factor.

Accounts receivable financing is a flexible funding option that can be used for a variety of purposes, including covering payroll or expanding your business. It’s also relatively easy to qualify for, as long as you have unpaid invoices from creditworthy customers. If y