Invoice Factoring for Small Businesses
Turn invoice receivables into immediate cash flow—no waiting, no debt.
What is Invoice Factoring?
Invoice factoring is a financing solution that helps businesses improve cash flow by converting outstanding customer invoices into immediate working capital. Instead of waiting 30, 60, or even 90 days for customers to pay, a factoring company—like SQR Financial’s lending partners—purchases your unpaid invoices at a discount and advances you a portion of their value upfront.
This is not a loan, and there’s no debt added to your balance sheet. It’s simply a way to access the money you’ve already earned—without delay or credit risk.
How Does Invoice Factoring Work?
The process is straightforward and fast:
- You submit unpaid invoices (usually B2B or B2G clients)
- We advance you up to 98%+ of the invoice amount depending on the industry, often within 24–48 hours
- Your customers pay the factoring company directly on their usual payment terms
- You receive the remaining balance, minus a small factoring fee
Because repayment comes from your customer—not you—your credit history plays a smaller role in approval. The primary consideration is the creditworthiness of your customers.
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What Can Invoice Factoring Be Used For?
When clients delay payments, it creates a ripple effect that can hinder your ability to operate. Invoice factoring helps unlock capital already earned but not yet collected, allowing you to reinvest in your business without waiting 30, 60, or 90 days.
Here are common, practical ways business owners use invoice factoring:
✔ Meet Payroll Without Disruption
Employee salaries are non-negotiable—your team keeps your business running. If client payments are delayed, a cash shortfall can jeopardize payroll. Factoring allows you to convert pending receivables into cash that keeps paychecks on time and morale high.
✔ Purchase Raw Materials or Inventory
Manufacturers, wholesalers, and retailers often need to buy inventory ahead of revenue. Factoring ensures that your next production run or restocking cycle isn’t held hostage by delayed customer payments. This keeps shelves full, orders moving, and production lines running.
✔ Fund New Contracts or Orders
You landed a big client—congrats! But what if fulfilling that order means upfront costs your cash flow can’t support? Invoice factoring allows you to accept larger contracts with confidence, using past invoices to fund future opportunities.
✔ Cover Day-to-Day Operational Costs
Rent, utilities, vendor payments, insurance—these keep coming whether your clients pay on time or not. Factoring frees up working capital so you can manage recurring expenses, avoid late fees, and keep your doors open and business stable.
✔ Bridge the Cash Flow Gap in Seasonal Businesses
Many industries—like landscaping, retail, and construction—are cyclical. During low-season months, unpaid invoices from the busy season can help cover expenses. Factoring is an ideal tool for stabilizing cash flow across cycles without relying on loans or credit lines.
✔ Avoid Taking on Additional Debt
Unlike loans or lines of credit, invoice factoring is not a liability. You’re not borrowing money—you’re selling future income. This keeps your balance sheet clean and credit lines open for larger investments when needed.
✔ Invest in Growth Without Waiting
Cash trapped in receivables is idle capital. Factoring allows you to redirect those funds into hiring, marketing, or product development—so you can grow now, not later.
Benefits of Invoice Factoring with SQR Financial
Fast Access to Cash — Get funded in as little as 24–48 hours
No New Debt — You’re selling receivables, not borrowing
Easy Qualification — Based on your clients’ creditworthiness
Ongoing Support — Use factoring as a one-time or recurring solution
Improved Financial Stability — Turn sales into cash immediately
Invoice Factoring vs. Traditional Business Loans
| Feature | Invoice Factoring | Traditional Loan |
|---|---|---|
| Collateral Required | No (invoices used as collateral) | Often yes |
| Repayment Responsibility | Your customer pays the factoring firm | You repay in fixed installments |
| Credit Score Requirements | Not Required | Medium to high |
| Time to Fund | 24–48 hours | 1–3 weeks or more |
| Best For | Immediate working capital from receivables | Long-term investment needs |
FAQs: Invoice Factoring Explained
What’s the difference between invoice factoring and invoice financing?
Invoice factoring involves selling your invoices to a third party (factor), who then collects payment from your clients. Invoice financing is a loan or line of credit where your invoices are used as collateral—but you’re still responsible for collecting payment. Factoring is often faster and doesn’t create new debt.
How much of my invoice will I receive upfront?
You’ll typically receive up to 98% of your invoice receivables within 1–2 business days. The remaining percentage is paid to you (minus the factoring fee) once your client pays the invoice in full.
What is the cost or fee of invoice factoring?
Fees usually range from 1% to 5% of the invoice amount per month, depending on your client’s payment terms, industry risk, and volume. If your client pays quickly, your fees remain low. The structure is transparent, and you’ll know the cost before committing.
Will my clients know I'm using a factoring service?
Yes, in most cases, the factoring provider communicates with your client because they collect the payment. However, the process is handled professionally, and we ensure it doesn’t disrupt your client relationships.
What types of invoices are eligible for factoring?
Invoices must be business-to-business (B2B) or business-to-government (B2G). They should be for completed work or delivered products, and not disputed or overdue beyond 90 days.
Can startups use invoice factoring?
Yes. Even if your business is new or your credit is limited, invoice factoring is still accessible. The key qualification factor is the credit strength of your clients, not your time in business.
Is there a minimum or maximum invoice amount I can factor?
Minimum amounts usually start at $5,000 per invoice. There’s no strict maximum—many companies factor hundreds of thousands or even millions in monthly receivables. We scale as your business grows.
How quickly can I get approved and funded?
Initial approvals are often completed within 24 hours, with funding shortly after. Once your account is set up, future invoice factoring can be processed in as little as one business day.
Will this affect my business credit score?
No. Because factoring is not a loan, it doesn’t show up as debt on your balance sheet and has no direct impact on your credit score. However, timely client payments can support your business’s financial health.
Can I factor only some of my invoices?
Yes. We offer selective factoring, allowing you to choose which invoices to factor based on your cash flow needs. There is no obligation to factor all outstanding receivables.