In the U.S. alone, over 30% of small businesses experience late or unpaid invoices, which has a domino effect that hurts company investments, supplier payments, and payroll. Fortunately, you have options to avoid these hardships.
Factoring occurs when a company sells one or more accounts receivable invoices owed on credit terms to a financier, known as a factor, for less than what they are owed. That discount, plus some additional fees, is how the factor makes its profit. The factor (hopefully) collects the full amount of the invoice owed from the original business’s customer.
Why would a business sell their invoice for less than what they are owed? Sometimes short-term debts exceed cash on hand. Therefore, a business will sell enough invoices to collect cash immediately from a factor in order to make their short-term debt payments. It’s not a position a business wants to be in, but it is a financial tool to boost cash flow when needed.
For example, Company A sells a product to Customer B for $50,000 with payment due in 60 days. Company A owes $30,000 to one or more of its suppliers in 30 days. Company A would sell the $50,000 invoice to Factor C for 90 cents on the dollar, or $45,000. Factor C may pay this in one lump sum or on a schedule to reduce risk.
As you can see from this example, invoice factoring is a sale, not a loan, like invoice financing.
We reviewed 14 factoring companies to help you find the right one for your business needs. To select the best of these options, we analyzed each company’s reputation, fees, credit requirements, speed of funding, invoice management features, integration to your accounting software, funding minimums and maximums, and their repayment terms. Here are our top picks.
The 5 Best Factoring Companies of 2020
Best Overall: BlueVine
We chose BlueVine as our best overall invoice factoring company because of its superior reputation, 10-minute application process, and 24-hour funding decision, all without a long-term contract.
Quick and easy application process
Financing for various qualifications and needs
Large funding amounts available
Financially strong company
Short repayment term results in higher payment amounts
Requires personal guarantee
Founded in 2013, BlueVine finances small businesses with credit lines, term loans, and invoice factoring services. The company has provided more than $6.5 billion in funds to 125,000+ customers and has one of the best reputations in the industry.
We chose BlueVine as the best overall factoring company because of its stellar reputation, simple application process, fast funding, and low rates. The application process can be completed in as little as 10 minutes, with a funding decision within 24 hours, and no long-term contract. The company’s discount rates start as low as 0.25% of the advance per week, which is one of the lowest rates in the industry.
To work with BlueVine’s factoring service, a business must have a credit score of at least 530, be in business for three or more months, generate $10,000 monthly, earn $100,000 annually, and sell to businesses, not consumers.
The company does not charge application fees, maintenance fees, origination fees, or lockbox fees. However, BlueVine charges a one-time due diligence fee of $500.
You can apply online with basic details about your business and customers. Once approved and connected, you can easily upload the details of your invoices right in your BlueVine dashboard through a customer login platform.
After approval, BlueVine’s system allows you to sync your invoices from your accounting software. Its system is compatible with QuickBooks, Xero, and FreshBooks.
If your business meets the minimum requirements, you can expect to get an advance of the funding within 24 hours. If you have a solid credit history and score, BlueVine can turn your invoices into cash within one to three days.
The minimum funding amount is $500, and the maximum is $5 million. BlueVine typically advances its client companies at a rate of 85% to 90% of the invoice total, followed by a term of one to 13 weeks for the balance payment, minus fees and interest.
Best for Large Invoices: altLINE
We chose altLINE as our best factoring company for large invoices because, as a commercial financing division of The Southern Bank, it is a direct financier and transparent to the business customer. As a result, it doesn’t have the middleman fees that are typically a percentage of the invoice, which saves more money on a large invoice.
Provides a wide range of loan amounts
Low discounts of 0.50%
Supported by a reliable banking institution
The payments do not come directly to you
Funds take three to seven days
altLINE has provided more than $400 million in funded invoices since 1936. Unlike most factoring companies, altLINE is backed by an established, reputable bank, The Southern Bank Company. altLINE is our preferred choice for large invoice factoring because, as a direct lending company, altLINE doesn’t carry additional borrowing costs that can become expensive on large invoices. While its upper limit is $5 million, and thus lower than a few of their competitors, we still selected it as best for large invoices because it keeps its fees transparent and charges fewer of them, which lowers the cost for the business customer with a large invoice.
altLINE offers a factoring rate of 0.75% to 3% per 30 days. It charges a $350 one-time origination fee, a $30 wire transfer fee, and an additional 1% additional charge if the customer wants to speed up the funding.
The company does not use credit score as a primary consideration. However, the specific rate will be determined partly by the customer’s credit and capacity to pay their invoices.
To work with the company, altLINE needs you to be in business for at least one year and, depending on your industry, it wants to see that your business earns at least $350,000 annually.
You can request a quote on altLINE’s website. After completing the request, an altLINE specialist will work with you to determine if factoring is the right service. The Southern Bank provides each client with a dedicated account manager.
The main drawback altLINE has compared to its competitors is the slower funding timeline. It can be as quick as three days, but it usually takes five to seven days. The application process, however, is fast and does not require an application fee.
The website offers a customer login portal on the website. You can download and upload spreadsheet files using Excel and your accounting software, but there is no direct integration between your software and altLINE’s portal.
The minimum amount the company will factor is $20,000 to $30,000, and the maximum amount is $5 million, with an advance rate of 80% to 90%. It pays the remainder as invoices are paid.
Best for Invoice Management: Triumph Business Capital
We chose Triumph Business Capital as our best factoring company for invoice management because of its online MyTriumph web portal. This portal provides a full array of client reporting and allows businesses to monitor the status of their invoice payments.
Welcomes borrowers with low credit scores
High advance rates, up to 90%
Push notifications to your mobile device keep you up to date
Funding can take up to seven days
Origination fee is charged, with flat rate and variable options
Not as much fee transparency as their competitors
Headquartered in Dallas, Texas, Triumph Business Capital has offered invoice factoring for over 7,000 small to mid-sized businesses since 2004. The company launched MyTriumph.com which is an industry-leading web portal built for customers to manage their funding. This portal is why we awarded Triumph as the best factoring company for invoice management. Customers can stay up to date on their account from anywhere with real-time information by logging into their MyTriumph dashboard to view requests, payments, invoice searches, and to get immediate support from their customer service team.
Triumph offers an advance rate of up to 90%, with a monthly discount rate of 1% to 4%. At a minimum, a business must have a credit score of at least 500, be at least a year old, and earn $100,000 annually to become a Triumph client. Business owners must have business-to-business or business-to-government sales invoices to qualify, also.
Fees vary in size and form. In some cases, there are flat fees, and in others, there are variable rates. It depends on what you negotiate with Triumph. Triumph Business Capital works with the business to fit their budget and terms requirements. Once inside the portal as a client, you’ll have ready access to your invoice management fee structure.
Interested businesses may apply by phone or through a form on the company's website. Just like the other factoring companies, a specialist will be in contact after submission. Loan approval initially takes five to seven days for first-time applicants. Once approved, however, future funding takes only 24 to 48 hours.
The MyTriumph portal is robust and easy to use to see where your requests stand in the funding approval process. There is no direct integration to sync your bookkeeping software, but you can download and upload Excel files through an import and export process.
Triumph determines its minimum invoice funding amount on a case-by-case basis, but it can go up to $20 million. Balances are repaid as invoices are paid.
Best for Trucking: RTS Financial
We chose RTS Financial as our best invoice factoring company for trucking because the company specializes in trucking and the freight industry. The company provides equipment leasing, fuel card programs, and trucking-related software with a mobile app.
Offers mobile apps and web browsers for better integration with their platform
No minimum volume fees or processing fees
Gives fuel card discounts
Funds within 24 hours
Up to 97% of invoice value paid upfront
You don’t find out about the rates they offer until after you’ve submitted a full application
Must apply over the phone
Has complaints about difficulties in getting out of contract and cancellation fees
RTS Financial, a factoring company founded in 1995, offers working capital solutions to businesses across multiple industries, but with a clear focus on the trucking industry. RTS Financial is our best choice for trucking industry invoice factoring because it offers a web browser and mobile app that serves truck driving companies with same-day funding, a discount fuel card program, a solution for trucking companies operating in Mexico, credit reports for freight brokers, and comprehensive fleet management software.
The company does not disclose its pricing and rates until after you’ve applied, but the average rate in this industry is 1% to 5%. RTS does not charge hidden fees such as ACH fees, invoice-upload fees, or minimum-volume fees.
For the invoice factoring service, the company will advance up to 97% of the total amount within 24 hours of taking your application.
Minimum credit score and time in business are non-issues for RTS Financial qualifications. Annual revenue requirements are lenient for trucking companies, but non-trucking companies must have a monthly revenue of at least $150,000 to qualify.
To apply with RTS Financial, you need to submit the contact form online. An agent will then call you and take your application over the phone. In the application conversation, you’ll submit personal and business information, truck details, company ownership, and more. After the submission review, a representative from RTS Financial will contact you again to discuss your qualification and options. Funding can be as quick as 24 hours once approved.
The company provides a mobile and web application called ProTransport to help clients manage their factoring account, view fuel discounts, and generate credit reports. It integrates with QuickBooks, but can also work with other programs by exporting data from your bookkeeping software and importing it into ProTransport.
Funding minimum and maximum amounts are determined on a case-by-case basis depending on the company's full understanding of your financial picture. For Fuel Card allowances, RTS permits up to $2,500 per truck, per week. As customer invoices are paid, the remaining payments are made to the trucking business.
Best for Small Business: Paragon Financial
We chose Paragon Financial as our best invoice factoring for small business because their comparatively low rates are helpful for smaller companies that need to retain more of their profit to survive. Paragon works with small to medium-sized businesses and is a good option for businesses that are struggling to get invoice factoring.
It has competitive rates
Lenient borrower requirements
Up to 90% advanced
24- to 48-hour funding is possible
Financing could become expensive if customers don't quickly pay invoices
Only one type of financing available; traditional loans or credit lines not offered
Since 1994, Paragon Financial has been providing alternative business funding. Based in Fort Lauderdale, Florida, with offices in Orlando, Tampa, and Miami, Florida, as well as Atlanta, Georgia, Paragon earns our top nod for small business invoice factoring because of its comparatively lower rates and lenient requirements, including no minimum time in business. Also, IRS issues and liens can be ignored, and the company offers non-recourse factoring for bankruptcy protection and weighs the customer’s ability to pay far above the personal credit of the business owner.
Rates typically range from 0.9% to 2.5% per month with additional fees that vary depending on the type of business. Their advance rate ranges between 80% and 90%.
The company does charge additional fees that vary based on the business. The possible fees include accounts receivable management and credit protection fees.
To qualify for Paragon’s invoice factoring, a business must generate, or forecast, monthly sales of at least $30,000, but there is no minimum requirement for your time in business, making Paragon a good option for small businesses in the startup phase. The personal credit score of the business owner does not matter; Paragon is more concerned with the customer’s ability to pay the invoice.
The application process starts when you fill out a short application on its website and submit financial documents for verification. Once the application is completed, a Paragon Financial representative will call you to explain the terms and fees. There is, however, a handy online calculator on their website so you can get a quick estimate of fees.
Paragon has the potential to advance your funds within a day after signing the agreement.
The company offers its Paragon Factoring & PO Funding Client Login on nearly every page of their website, but to sync with your bookkeeping software you’ll need to export and import through third-party programs.
Funding minimums and maximums are determined on a case-by-case basis, and repayments are scheduled when invoices are paid.
What Is Factoring?
Invoice factoring is a mechanism for businesses to inject cash into their accounts by selling their invoices to a third party at a discount. Companies get immediate cash for their unpaid invoices that are due within 90 days, instead of waiting for their customers to pay their financial obligations.
This funding option is best for businesses that need immediate cash to pay bills or make a large purchase, such as inventory. Factoring is best used as a short-term funding option because fees can be expensive if customers take more than 30 days to pay their invoices.
How Much Does a Factoring Company Charge?
A factoring company charges the business client a factor fee, which is the fee they charge for the advancement of funds. A good way to think of this fee is as a discount rate. For example, if the factor fee is 1% on a $30,000 invoice, then the fee is $300. Keep in mind, the 1% rate in this example is likely to grow to 2% on a weekly basis, and by the third month, expect 5%.
Factor fees often scale from 0.75% to 5%. The longer it takes your customer to pay off the invoice in full to the factoring company, the higher the factor rate climbs over time.
Is Invoice Factoring Worth It?
Invoice factoring is best used when a business needs cash to fund inventory purchases or payroll and has invoices that are due in less than 90 days from customers with good credit. The business can turn those invoices into immediate cash to manage their business.
Factoring may not make sense if you as a business owner have good credit, a low debt-to-income ratio, and you don’t need the cash within a week. In this case, a long-term business loan or line of credit would be a better fit because the effective interest rate will be much lower.
What Is the Difference Between Invoice Financing and Factoring?
Invoice financing and invoice factoring both provide funding to a business in need of cash to accomplish its goals, such as making payroll, paying its vendors, or buying more inventory.
They differ on one important point, however. Invoice financing is a loan, and invoice factoring is a sale. A business that uses invoice financing gets a loan from a bank that lends on the value of outstanding invoices it has. You’ll need to make payments like any other loan, and your business will still be collecting payments from your customers per usual.
Invoice factoring occurs when a business sells its invoices to a factoring company at a discount in exchange for immediate cash. The factoring company then owns the invoices and collects payment from your customers.
How We Chose the Best Factoring Companies
We reviewed 14 factoring companies to select the best five. We researched their factor fees, advance rate percentages, credit score eligibility requirements, minimum and maximum funding limits, invoice management processes, repayment terms, overall process duration, and bookkeeping software integration. As a result, we found five great factors that excel in different categories ready to help you with this long-standing business finance tool.
Sage. “Late payments: Why your invoices are delayed and how to get them paid faster.” Accessed October 11, 2020.