The Best Factoring Companies for Small Businesses

A factoring company is a third-party financial institution that offers businesses cash in exchange for ownership of their unpaid, outstanding invoices. After this transfer of ownership, the factoring company—also known as an invoice factoring company, an accounts receivable factoring company, or even a factoring receivables company—will typically take over the responsibility of collecting the invoice amount from a business’s customer. Thus making invoice factoring distinct from invoice financing.

In essence, factoring companies help businesses open up their cash flow while they wait for customers to pay them for their services. Therefore, if you’re a B2B business (or any other business that invoices customers) and you need to free up capital held in unpaid invoices, invoice factoring might be the right solution for you.

Where can you find the best invoice factoring?

We’re here to help. In this guide, we’ll break down everything you need to know about invoice factoring—discussing some of the top factoring companies and what they can offer—plus, how to choose the right factoring company for your business.

Compared to other types of business loans, invoice factoring is a very unique form of financing.

As we mentioned above, if you need to be paid for your services right away, then you might approach a factoring company to help you get the cash that customers currently owe you.

This being said, when working with an invoice factoring company, you “sell” your outstanding invoices to the company in return for an advance of cash—typically around 80% of the value of the invoices. Generally, the factoring company will then take over the collection of your customers’ invoice payments. In this way, the company’s ownership of the invoices is what distinguishes invoice factoring vs. invoice financing.

It’s worth noting, however, that these two terms are often used interchangeably—meaning some factoring companies may not collect the payments directly from your customers, leaving that responsibility to you.

In either case, when your customer pays their invoices, you’ll receive the remaining amount of the invoice value that the factoring company held in reserve—minus the fees the company collects for each week it takes for your customer to fulfill their payment.

This is another common difference between invoice factoring and invoice financing—with invoice financing, you’ll have to pay your fees to the company after receiving the amount in reserve, whereas invoice factoring companies will take their fees and then distribute the remaining amount to you.

As an example, say you have an outstanding invoice of $100,000, and the factoring company you choose to work with advances you 85% of that invoice—this means that you’ll receive $85,000 right away, and the invoice factoring company will hold the additional $15,000 in reserve.

Now, say it takes your client two weeks to pay their invoice—this means that the factoring company will charge fees on the reserve amount for two weeks. Usually, accounts receivables factoring companies charge about a 1% factor fee on the total value of the invoice each week it takes your customer to pay it. In this case, therefore, in total, the factoring company will charge 2% on the total invoice amount.

Additionally, it’s worth noting that sometimes a factoring company will charge a processing fee at the point of the sale, usually around 3% of the total invoice amount, so let’s assume that the factoring company in question charges a processing fee of 3%.

With all fees considered, the factoring company will end up taking 5% of the invoice value—or $5,000—from the reserve amount. At the end of the day, then, you’ll receive $10,000 back from the original reserve amount of $15,000—meaning you’ve received a total of $95,000 of your $100,000 invoice.

Now that you have a better sense of how invoice factoring works, you should have an idea of whether or not this type of financing is right for your business’s needs.

If you are seeking quick financing to improve your cash flow, invoice factoring with a reputable factoring company can be a great solution. At this point, it’s important to note again, that most factoring companies don’t actually lend you money—instead, they essentially purchase your receivables at a discount—giving you access to fast cash.

Once again, however, invoice factoring and invoice financing are frequently used interchangeably, and therefore, you’ll want to be sure you understand the specific terms of any company you work with—so you know whether it’s truly invoice factoring and whether or not you’re responsible for collecting customer payments and paying your respective fees to the company.

With all of this in mind, here’s a summary of some of the top invoice factoring companies you might consider:

Best Factoring Companies for Small Businesses

AltLINE is the commercial financing division of The Southern Bank, which has been in operation for over 84 years. Although they work primarily with staffing and consulting firms, altLINE can also provide financing to businesses in the manufacturing and distribution sectors, as well as government contractors. You can apply for invoice factoring from altLINE online—qualified businesses can receive funding in as little as 48 hours.

With this in mind, altLINE can factor up to $4 million per month and up to 90% of an invoice amount. On average, however, they fund customers about $500,000 per month. Along these lines, it’s important to note to work with altLINE as your invoice factoring company, you must be able to factor at least $15,000 per month with them.

This being said, altLINE is a true factoring company, in that they will purchase your outstanding invoices and take over the collections process. Once they collect the outstanding invoice, they’ll advance you the difference, minus their fees. Typically, factor fees from altLINE range from 0.5% to 3% for the first 30 days the invoice is outstanding. After 30 days, altLINE will increase the factor fee incrementally every 15 days—altLINE fees max out at 5%.

To qualify for financing with altLINE, you must have a minimum credit score of 500; altLINE does not have an annual revenue or time in business requirement. During the underwriting process, altLINE will evaluate the credit quality of your customers. Ideally, altLINE either wants to see that your business is working with several large accounts, or a lot of smaller accounts.

altLINE will not work with businesses that have had two or more bankruptcies, a previous loan default, or a large tax lien against their business.

For an invoice factoring company with no contracts, no minimums, and no hidden fees, you might look into Payplant.

Payplant is an online lender that offers on-demand invoice factoring through their “Pay Me Now” program. Through this program, you can choose which invoices to finance (generally up to $1 million) and Payplant will advance you up to 90% of the invoice amount.

Like altLINE, Payplant is truly a factoring company, and therefore, they’ll handle payments from your customers. When your customer pay, they’ll transfer the remaining amount, minus their fees. Payplant’s factor fees start at 1.2% per month, with a minimum duration of 30 days.

You can apply for invoice factoring with Payplant online and a representative will follow up by phone to discuss your application. Payplant can fund you in as little as 72 hours.

Although Payplant doesn’t list specific requirements on their website, they do state that small private companies or startups may face higher rates, as it’s simpler to evaluate the creditworthiness of larger companies.

This being said, however, with no monthly minimums and no long-term contracts, Payplant can be a great option for fast accounts receivable financing. Plus, you can use the Pay Me Now calculator on the Payplant website to estimate your rates, as well as submit your basic business information to receive an instant quote.

Backed by a publicly traded bank, Triumph Business Capital actually offers a range of financing products. For small businesses, however, the most accessible product will be their invoice factoring.

Triumph can fund invoices up to $5 million, allowing you to initiate the application process online and receive capital in five to seven days. Using Triumph as your factoring company, you won’t have to worry about collecting payments from your customers—but you will be able to track progress through online statements and an online dashboard.

This being said, to qualify for invoice factoring from Triumph, you’ll need $100,000 in annual revenue, a minimum credit score of 500, and at least one year in business. Additionally, it’s important to note that Triumph charges a $300 origination fee.

Although Triumph doesn’t specify their factor fees on their website, they do write that your fees will depend on your unique agreement—their experts will consider whether you’ve chosen recourse or non-recourse (meaning the lender assumes the risk for unpaid invoices) factoring, the credit quality of your customers, among other factors—to determine what your fees will look like.

Plus, as your business grows, Triumph gives you the option to consider their other financing products and if necessary, work with you to find a better solution as your business’s financing needs change.

Finally, the last option on our list of the best factoring companies is technically an invoicing financing company. This being said, however, Fundbox is certainly an option that business owners should consider alongside factoring and might even be a better fit for you than traditional invoice factoring.

With Fundbox, you can finance up to $100,000, which you’ll pay back over a 12 or 24 week period. Unlike traditional factoring companies, Fundbox funds the full amount of the invoice, rather than a percentage. You then repay the principal, transaction fees, and advance fees over your designated term. You also have the option to pay the principal off early to waive any remaining fees.

Additionally, Fundbox has one of the simplest application processes out there—all you have to do is sign up for an account and connect your accounting or invoicing software. Fundbox can approve your application and deposit the funds in your business bank account in as little as one day.

This being said, it’s important to remember that unlike the other invoice factoring companies we’ve discussed, you’ll be required to collect on your invoices when working with Fundbox. Therefore, as we mentioned, you’re also responsible for paying back the amount of capital you borrowed, plus fees (essentially making this an asset-based loan). Interest rates for invoice financing with Fundbox start at 4.66%.

To qualify for this financing, you’ll need to have a minimum credit score of 500, annual revenue of $25,000 and at least three months in business.

In this way, Fundbox is a great option not only if you’re looking for invoice financing over factoring, but also for startups and less qualified business owners.

If you’re looking for an invoice factoring company, chances are you’ve already decided that invoice factoring is the right business financing solution for you.

If that’s the case, you want to make sure you’re choosing a factoring company that will be a partner to your business and help you combat any cash flow issues that come from outstanding invoices.

When evaluating any factoring company, therefore, you can ask the following questions to ensure that you find the best one for your business.

At the end of the day, invoice factoring is an easy and reliable way to mitigate cash flow issues and keep your business moving forward. As we’ve discussed, there are several reputable invoice factoring companies that offer large advances with minimal fees—as long as your clients pay in a timely manner.

Of course, with this type of funding, you’re essentially paying to access your own money—and therefore, you won’t ever see the full invoice amount, as each factoring company has their fees. However, if your business is strapped for cash, invoice factoring can be a viable option to continue your operations.

Nevertheless, you should always consider all of your financing options—including other types of business loans—before deciding which one is best for your business.