How Does Invoice Factoring Work?

Business owner submits outstanding invoices for funding

Traditional invoice factoring companies often require a business to factor all their invoices for the duration of a contract. With many newer companies, you can choose which invoices you want to fund. (Full disclosure: FundThrough lets you pick which invoices to fund with no monthly funding obligation, no maximum, and no longterm commitment after the invoice is paid.

Factoring company does due diligence

Oftentimes this will include checking that a business is legally established, is up-to-date on taxes, and doesn’t have liens on their accounts receivable and/or the specific invoice. (Many factoring companies will find ways to work with businesses if they have these issues.)

The business’ customer is asked to sign an NOA

Having the customer owing the invoice sign a Notice of Assignment means they understand that the factoring company now owns the invoice so they can redirect payment. While a lot of business owners get concerned about their customer being involved, many large companies are used to this process.

The business owner gets funded

The business owner receives cash in their bank account, less a fee (or, the invoice factoring cost). They can now have peace of mind that they have cash available to grow their business or cover any other cash flow gap

The customer pays the factoring company according to the invoice terms

When the invoice is due, the customer pays the factoring company, and the process is complete.