8 Ways Invoice Factoring Can Make Your Business Better

Invoice factoring is unlike any other business finance solution. Small business invoice factoring is an ideal form of financing for startups and small businesses that haven’t reached their full potential yet; it helps organizations grow stronger. On this page, we’ll go over some of the benefits of invoice factoring and how invoice factoring works, so it’s easier to see if it’s the right way for your small business to level up.

How Does Factoring Work?

Also referred to as accounts receivables factoring or accounts receivable financing, business receivables factoring, or sometimes even invoice financing, invoice factoring involves selling your unpaid customer invoices (accounts receivable) to a factoring company, who will then pay you a percentage of the total invoice value (minus a discount rate known as a factoring fee). Factoring allows you to skip the wait for payments from your B2B customers. Whereas you might normally wait net 30 payment terms or longer for customers to pay their invoice, with factoring, an invoice factoring company purchases the invoice from you and typically gives you 70 to 90 percent of the total value upfront. If you’re a Viva client, you may qualify for advances of up to 98 percent. Understanding the differences between purchase order financing and factoring can help you determine the best solution for your business needs.

It’s also important to understand the difference between debt collection and invoice factoring, as these processes handle unpaid invoices in fundamentally different ways and can significantly impact your cash flow strategy.

When the invoice factoring company collects your customer’s payment, you receive the remainder of the invoice amount minus a nominal factor fee known as the factoring rate. There are no hidden fees. There’s no waiting for outstanding invoices to be paid, and you don’t take on debt like you would with a traditional business loan. And, because factoring is a financial transaction between you and a third party, you can record it for your end-of-year tax deductions. You can use your cash advance to cover expenses, grow, and more.

Why Use Factoring?

Before we dig into the advantages of invoice factoring and how factoring can make your business better, it’s helpful to know why people look into invoice factoring for small businesses in the first place.

You Can Receive Money from an Invoice Quickly

Small Business Invoice Factoring is one of the fastest, most flexible ways to obtain business funding. As a small business owner, you get almost immediate cash in your bank account. At Viva, you can get working capital in as little as 24 hours.

Your Customer’s Credit Score Is the Focus, Not Yours

One of the major reasons many small-business owners strike out with traditional bank loans is that banks focus on your personal credit score. Factoring companies aren’t collecting from you, so your credit is less of a concern. They will, however, look into the creditworthiness of your clients, which is why it is best to use the invoices of customers with a good payment history.

There’s Very Little Paperwork

In “How to Get a Business Line of Credit,” we dig into all the documents you need to gather and what the paperwork is like. Suffice to say, it’s quite an involved process, and that’s typical for most traditional forms of lending. Small Business Invoice Factoring offers streamlined signup, and you can often factor as needed without having to start your paperwork from scratch.

How Can Invoice Factoring Make Your Business Better?

When it comes to invoice factoring for small businesses, reliability, and experience are key. Once you find a factor you can trust, you can be sure that your business will benefit. A great factoring company doesn’t simply alleviate cash flow problems. It will help your business thrive and equip small-business owners with the tools they need to build bigger, stronger, more profitable companies. For real-world examples of how companies have successfully leveraged factoring to drive growth and stability, explore these business factoring success stories.

1. Accounts Receivable Factoring Accelerates Your Cash Flow

Late payments in the B2B sector have always been a problem. More than 90 percent of businesses report delinquency from their customers, according to Atradius research. Whereas in the past, only around 10 percent of B2B invoices were unpaid 90 days after their due date, their latest survey shows a massive hike to 16 percent. It’s not only getting harder to collect, but it’s taking longer, too. Factoring provides reliable cash flow in uncertain times.

2. You’re Not Taking on Debt

Your customers are responsible for paying their unpaid invoices with factoring, so you aren’t taking on debt. That means you’re always looking toward the future and building your business, not getting caught in a debt spiral trying to pay back what you borrowed yesterday.

3. Invoice Factoring is Affordable

Some forms of business lending have APRs that climb well into the hundreds when you add up all the fees and interest. Invoice factoring is not only far more affordable than these options but can deliver serious ROI when you apply the cash you receive to meaningful opportunities.

4. You Maintain Better Credit Control

Small-business owners often use factoring to help them build and maintain credit. While it won’t boost your score in a traditional sense, it doesn’t increase your debt-to-income ratio or reflect poorly on your credit checks. Plus, factoring doesn’t hold you hostage or prevent you from seeking out other forms of financing like some traditional lending options do. In fact, if you have a debt covenant with another lender, factoring may be one of the few ways you’re allowed to obtain working capital outside of your original loan agreement.

It’s also worth mentioning that because factoring stabilizes your cash flow, it’s much easier for you to forecast and stay ahead of your bills, which is a huge component of building strong credit.

5. You Can Spend the Money Wherever You See Fit

Factoring companies offer more flexibility than traditional lenders and don’t usually dictate how you spend the accounts receivable advance. That’s not true with some other forms of lending that place stipulations on how cash can be spent and require you to keep receipts to show funds were used according to the terms of your agreement. That means you can put the money to work wherever it will do the most good for your business at any given time. Order supplies, cover payroll, and purchase assets and equipment—the choice is yours.

6. Your Factoring Cash Can Fund Business Growth

“Profitability and growth go hand-in-hand when it comes to success in business,” explains J.B. Maverick of Investopedia. “Profit is key to basic financial survival as a corporate entity, while growth is key to profit and long-term success.”

With cash in hand, you can enhance your marketing and expand into new territories, products, or services. You can obtain supplies and equipment or hire a team to increase your volume. Again, how you spend the money is up to you.

7. You’re Free from Chasing Outstanding Invoices

One of the often-overlooked benefits of invoice factoring is that it frees you from the accounts receivable process. You no longer have to collect customer payments, send follow-ups, or perform any of the other time-consuming tasks involved with collections. Your factoring company handles it for you. This allows you to really focus on building a stronger business.

8. You Reduce the Risk of Bad Debts

Many small-business owners don’t think of their invoicing process as extending credit to their clients, but that’s exactly what’s happening. It’s a short-term loan; the face value of the invoice amount is your collateral. You wouldn’t go to a bank and expect a loan without the bank looking into your history and ability to pay, but that’s what countless small-business owners do when they invoice a customer after work is performed or goods are delivered without performing some kind of audit in advance. When you work with a factoring company, they’ll look into your customers’ creditworthiness for you. That way, there’s greater assurance payment will be made in full promptly.

Which Industries Use Factoring?

Just about any B2B company that invoices its customers after goods or services are delivered can use factoring.

Transportation

Viva got its start providing factoring services for transportation companies. It’s a huge help for truckers, especially small business owner-operators, because they can get paid for a load as soon as work is complete and move on to the next load right away. Brokers often use factoring, too. It helps ensure they can pay their carriers right away without putting pressure on their shippers.

Oilfield

Based in El Paso, Texas, it’s no wonder Viva quickly expanded into oilfield services factoring. Oftentimes, our clients are small businesses that serve large energy companies. The bigger the company, the more steps there are in getting an invoice processed, so it can take a while for the companies to get paid. We accelerate their cash flows, so they can keep working on their highly lucrative contracts.

Healthcare

Cash flow problems can cause serious issues for healthcare companies. On the one hand, you have medical providers who treat patients and bill third-party medical insurance companies. It doesn’t always take long for insurance companies to pay, but sometimes claims have to be reworked, and there’s quite a bit of back-and-forth before money changes hands. Meanwhile, patients still need to be cared for, supplies must be purchased, and the team needs to be paid. In these cases, reverse factoring can help. We pay suppliers, so healthcare providers can focus on delivering excellent care.

On the other hand, companies that provide services or sell goods to the medical industry can benefit from accelerating their cash flow. Again, their clients are often stuck waiting on insurance payments, which means their payments to vendors are slow, too. At Viva, we provide both types of healthcare factoring services.

Manufacturing

Manufacturing companies often have significant overhead—money going into supplies and resources before their goods can be sold. Then, they’re stuck waiting even longer for their buyer to pay an invoice. We provide a wide array of manufacturing companies with factoring services too.

Staffing

Most companies can’t get away with waiting a month or more to pay their employees, but that’s precisely what staffing companies contend with. They’re responsible for covering payroll and often benefits for their employees, but the companies they serve may not pay for that labor until more than a month after the person worked. We provide factoring services for staffing companies, and they usually apply the cash to payroll.

What Is Invoice Factoring For Small Business?

Before diving deeper, let’s clarify the concept. Invoice factoring for small business is a financing option where you sell your unpaid invoices to a third-party factoring company. They advance you most of the full value of the invoice up front, then collect later—letting you skip the cash flow gap while waiting for invoice payments. For a small business owner juggling expenses, payroll, and growth, this is often more practical than waiting 30, 60, or even 90 days for cash.

How Invoice Factoring Work In A Simple Step-by-Step Guide

1. You send your invoice to customers as usual.
   
2. You select invoices from your sales ledger to factor.
   
3. The factoring company reviews client credit through a standard credit check.
   
4. They approve and provide up to 90–98% of the full value.
   
5. You get immediate access to capital—no loan, no collateral, and without waiting.
   
6. Once the invoice is paid, the factor sends you the remaining balance, minus the factoring fee.
   

This process does not require extensive paperwork or loan collateral, making it far quicker than a traditional loan or term loan application.

Real Benefits Of Invoice Factoring

These are some of the real benefits of invoice factoring:

Immediate Cash Flow To Close Gaps

Invoice financing is ideal if your business experiences cash flow gaps between sending invoices and receiving payment. Small business factoring gives you quick access to cash to cover expenses or seize growth opportunities.

Flexible, Not Debt

Factoring is not a loan—it’s a transaction. You’re selling the invoice, not taking out a debt. That means you’re not borrowing nor adding liabilities—just improving your working capital.

Altogether Cost-Effective

While there’s a factoring fee, it can be lower than the interest and fees associated with small business loans. The ROI comes from growth opportunities unlocked by faster cash flow.

Choose The Right Type: Recourse Vs. Non-Recourse Factoring

When considering invoice factoring for small business owner, one critical decision is choosing between recourse factoring and non-recourse factoring.

Recourse Factoring

This type of factoring agreement allows you to get cheaper advances—but comes with a key disadvantage: if the customer fails to pay, you’re on the hook to repay the cash advance. It’s safer for the factoring company, but riskier for your margins.

Non-Recourse Factoring

Here, the factoring company absorbs the risk if a customer doesn’t pay. You sacrifice some margin via higher factoring fees, but gain peace of mind. For many small businesses, non-recourse factoring is worth the trade-off to avoid chasing bad receivables.

Common Fees And Considerations In A Factoring Agreement

Factoring Fee: Usually a percentage of the invoice, often based on your clients’ creditworthiness.
Advance Rate: The percentage of the invoice value you receive upfront (usually 70–98%).
Additional Fees: Watch for extra costs like set-up fees, wire fees, or minimum volume charges.
Length of Agreement: Make sure you understand how long you’re committed—many factoring agreements run monthly or annually.

Take time to shop around and compare factoring companies, and read every detail of the factoring agreement before signing.

Invoice Factoring Lets You Focus On Growth

By taking invoiced amounts and turning them into immediate funding, small business invoice factoring gives you freedom and flexibility. Need to expand your team, order inventory, or launch a marketing campaign? The cash is there—without taking on long-term debt.

Who Qualifies For Invoice Factoring?

Many small business owners are eligible, even if traditional lenders have rejected them.
You typically need reliable invoices from creditworthy clients, not perfect financials.
If you qualify, the factoring agreement is scalable: the more receivables you have, the more funding you can access.

If you’re considering invoice factoring for small business owners, this flexibility can be a game-changer.

Invoice Factoring Vs. Other Financing Options

Term Loan: This is true debt—repayments + interest, with potentially strict collateral requirements.
Invoice Discounting: You borrow against receivables, but retain credit control and must repay.
Invoice Factoring: The factoring company handles invoicing and collection and buys the invoice outright.

Each option has its place, but factoring often stands out for fast, flexible funding.

Summary: Why Small Business Invoice Factoring Works

Fast access to working capital to smooth daily operations
No additional debt, because you’re selling assets, not borrowing
Cost-effective funding, with fees offset by growth and cash flow
Choice between recourse and non-recourse factoring, depending on your risk appetite

For small business owners navigating growth, unexpected expenses, or tight payment terms, a guide to invoice factoring can be a resource worth bookmarking. It offers a practical, owner-friendly way to turn your unpaid invoices into fuel for your company’s future.

Use Invoice Factoring To Build Business Credit

Even though invoice factoring is not a loan, it can still help improve your business credit profile. When you use invoice factoring consistently, you’re demonstrating to lenders that you have stable and active cash flow. As you factor invoices and pay business expenses on time, your credit history reflects that reliability. That can make it easier to qualify for small business financing in the future—like a bank-backed loan or a term loan—when you’re ready to scale even further.

How That Pan Out Over Time

Every time you factor invoices through the same factoring company, you’re effectively opening a revolving financing agreement tied to receivables. While you don’t have to repay the cash advance like with a traditional loan, the advanced funds do come back into your account—then your customers pay off your invoices to the factoring company. That cycle helps lenders see that your business can manage large inflows and operate smoothly.

Choosing From Factoring Companies And Understanding Additional Fees

When exploring invoice factoring for small business, you’ll find many factoring companies competing for your attention. It pays to shop around and compare key terms and additional fees. Some factoring companies take a cut as high as 5%, while others offer lower fees but require minimum volume commitments. Read the fine print in your financing agreement to know what types of invoices from small businesses are accepted, what the advance rate is, and how fast you’ll get paid.

What You Should Ask

• Does the factoring company contact your customers directly?
  
• Are ACH fees or wire transfer fees part of the deal?
  
• Is there a setup or monthly account maintenance fee?
  
• What are the criteria to get approved for invoice factoring, especially regarding eligible receivables?
  

Getting clarity here ensures you understand exactly how much of each invoice you’ll actually receive and what your effective cost really is.

Invoice Financing With Customer-Friendly Payment Terms

Invoice financing can be especially effective when your small business offers net-30, net-60, or even net-90 payment terms. These longer payment terms often discourage traditional lenders, but factoring thrives here. Because factoring focuses on invoice strength and creditworthiness of your customers—not your credit history—small business owners who offer generous payment terms can still get quick access to funds.

This model also benefits you as a business owner. The factoring company assumes the bulk of the administrative tasks around collecting outstanding invoices, so you can concentrate on growth—not on chasing payments. You maintain your relationships, use invoice factoring to fund growth, and keep cash flowing through your operations.

Looking for Invoice Factoring for Your Small Business?

No matter what industry you’re in, invoice factoring may be your ideal cash flow solution if you invoice other businesses after goods or services are delivered. As one of America’s leading specialty finance companies, Viva has decades of experience and offers a variety of funding solutions to meet the needs of small-business owners today. If small business invoice factoring services sound like your ideal business booster, start with a complimentary rate quote.