Invoice factoring
Invoice factoring,
explained without the sales pitch.
Invoice factoring is the purchase of your unpaid business invoices by a factoring company at a discount in exchange for immediate cash. Advance rates are typically 80 to 90 percent of eligible invoice value, depending on the industry, customer credit and facility terms, and once approved, eligible invoices can typically be funded within 24 to 48 hours. The factor collects payment from your customer on the original terms, then releases the remaining reserve less an agreed fee. Factoring is structured as the purchase of receivables rather than a traditional term loan.
Based in Oklahoma City. Funding businesses nationwide.
By the Hexagon Commercial Finance team.
The four steps of a factoring cycle.
First, you complete the work and invoice your customer exactly as you always have. Nothing about your commercial relationship or your agreed payment terms changes.
Second, you submit the invoice to the factor along with supporting documentation: a signed delivery ticket, an approved timesheet, a bill of lading, or an accepted progress billing depending on your industry. The factor verifies that the work was delivered and accepted.
Third, the advance is funded. Advance rates are typically 80 to 90 percent of eligible invoice value, depending on the industry, customer credit and facility terms, and once approved, eligible invoices can typically be funded within 24 to 48 hours. That cash is unrestricted and goes into your operating account.
Fourth, your customer pays the invoice on their normal terms, directly to the factor. The reserve balance is then released to you, less the agreed fee. The invoice is closed and nothing carries forward.
Who factoring suits, and who it does not.
It fits businesses that invoice other businesses or government agencies on terms, where the work is complete and accepted, the customers are creditworthy, and the constraint on growth is timing rather than profitability. Trucking, staffing, construction, oilfield services, manufacturing, healthcare services and government contracting are the most common sectors.
It fits poorly when you sell directly to consumers, when payment is collected at the point of sale, when invoices depend on future performance or are commonly disputed, or when the business is unprofitable at the gross margin level. Factoring accelerates cash. It cannot create margin.
Recourse and non-recourse, explained honestly.
Under a recourse facility, the credit risk on your customer ultimately stays with you. If an invoice is never paid, it is charged back or offset against future advances. This is the most common structure and it carries the lower rate.
Under a non-recourse facility, the factor absorbs credit losses in defined circumstances, most often the customer's insolvency, and typically only for customers approved in advance. Non-recourse does not mean every unpaid invoice is covered, and disputes over the quality of your work are almost never covered under either structure.
Any factor who describes non-recourse as blanket protection is glossing over the exclusions. Read the definition of a credit loss in the agreement before comparing rates.
At a glance
- What it is
- The purchase of an unpaid invoice at a discount
- Typical advance
- 80 to 90 percent of eligible invoice value, depending on industry, customer credit and facility terms
- Typical funding speed
- Once approved, eligible invoices can typically be funded within 24 to 48 hours
- Reserve
- Released on customer payment, less the fee
- Structure
- Purchase of receivables, not a traditional term loan
- Typical setup time
- A few business days
- Service area
- Nationwide, from our Oklahoma City office
- Sectors served
- Trucking, staffing, construction, oilfield, healthcare and more
Questions people ask
Straight answers before any paperwork.
Book a Cashflow Consultation. Based in Oklahoma City, funding nationwide.