Struggling to Collect on Your Accounts Receivable? Factoring Could Be the Solution

If you’ve ever waited what feels like forever to get paid, you know how frustrating slow-paying customers can be. Your invoices are sitting there, unpaid, while bills, payroll, and everyday expenses keep piling up. This is a common accounts receivable problem — and it can strangle your cash flow if you don’t take action.

One option many business owners overlook is factoring accounts receivable. In simple terms, factoring lets you turn your unpaid invoices into immediate cash.

What Is Accounts Receivable Factoring?

Accounts receivable factoring (sometimes called invoice factoring) is when you sell your outstanding invoices to a factoring company. They give you a large percentage of the invoice amount right away — usually within 24 to 48 hours. Then, when your customer finally pays, you get the remaining balance minus their fee.

Example:

• You send a $10,000 invoice to your customer.

• You sell that invoice to a factoring company.

• They pay you $8,500 immediately.

• When your customer pays, the factoring company sends you the rest (minus their fee).

Why Factoring Your Receivables Can Help

Factoring isn’t just about getting paid faster — it’s about protecting your cash flow so you can keep your business running. Here are a few ways it can help:

• Cover payroll on time

• Pay suppliers without delays

• Take on new projects without waiting for old invoices to clear

• Avoid taking on high-interest loans just to bridge cash gaps

When Factoring Is a Good Fit

Factoring works best if you:

• Have consistent sales but slow-paying customers

• Send invoices with clear payment terms

• Need immediate working capital without taking on traditional debt

It may not be right if your invoices are small, your customers are unreliable, or factoring fees eat too much into your profits.

The Cost of Factoring

Factoring isn’t free. Fees vary depending on your industry, invoice amounts, and how long customers take to pay. Typical factoring fees range from 1% to 5% of the invoice value. Always read the fine print and make sure the math makes sense for your business.

Choosing the Right Factoring Company

If you decide factoring could work for you, choose your factoring partner carefully. Look for:

• Transparent fees and no hidden costs

• Good reviews from other business owners

• Flexibility in which invoices you factor

• A clear and simple contract

Final Thoughts

Factoring your accounts receivable isn’t the perfect solution for every business — but when cash flow is tight, it can be a game-changer. If your invoices are piling up and your bank account is running low, accounts receivable factoring might give you the breathing room you need.