How to Choose a Factoring Company for Your Business
The factoring agreement sets your advance rate, fee, recourse terms and how you leave. Compare those terms before you sign, and learn how a buyout works if you already factor.
- ✓Read the agreement. Advance rate, fee, recourse and term length all sit in one contract.
- ✓Know the fee range. Factoring fees typically run 1%–3% of each invoice you sell.
- ✓Plan your exit. A buyout and a UCC-3 move your account if you switch factors.
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Message a SpecialistExecutive Summary: Choosing a Factoring Company
What it is: Choosing a factoring company means comparing the terms of each factoring agreement: advance rate, fee, recourse, contract length, the receivables covered, and how you leave.
The numbers: Expect an advance of 70%–90%, a factoring fee of 1%–3%, same-day approval and a 2–5 day closing on a new account. Funding within 24 hours applies once your account is active, and monthly volume starts around $50,000 (estimated).
Key constraints: Factors decline B2C invoices, invoices more than 90 days past due and customers with weak payment histories. Recourse terms make you buy back unpaid invoices, and early termination clauses can tie you to one factor.
The Fast Facts on Choosing a Factoring Company
What should a factoring agreement include?
A factoring agreement is defined as the contract that sets the advance rate, fees, recourse terms, term length and the receivables covered. Read each of those terms in writing before you sign, and ask for the termination clause and the reserve release schedule as well.
How do I compare factoring fees?
The short answer is to price each offer on the same invoice and the same payment time. Fees typically run 1%–3% per invoice, and non-recourse terms price toward the higher end. Ask for the fee in writing next to the advance rate and the reserve rebate timing.
What is a factoring buyout?
A factoring buyout is defined as a new factor paying off your current factor so your account can move. The old factor then sends your customers a letter of release and files a UCC-3, and your customers start paying under a new Notice of Assignment.
Five terms to compare in every factoring agreement
| Term | What to ask | What it means for you |
|---|---|---|
| Advance rate | What share of each invoice do I receive up front? | Expect 70%–90%; the reserve comes back after your customer pays |
| Factoring fee | What percentage applies, and how does payment time change it? | Expect 1%–3% of each invoice |
| Recourse | Do I buy back invoices my customer fails to pay? | Recourse costs less; non-recourse prices toward the higher end |
| Contract term | How long does the agreement run, and how do I end it? | Look for no long-term contract and a clear notice period |
| Receivables covered | Must I sell every invoice or only the ones I pick? | Selective terms give you control over volume |
Red flags before you sign
Long termination windows
Some agreements renew automatically and require months of written notice to leave. Mark the notice date on your calendar the day you sign.
Volume minimums with penalties
A monthly minimum with a shortfall charge makes you pay in slow months. Ask whether the agreement carries one and what it costs.
Fees quoted as a single starting rate
A starting rate can grow as your customer pays slower. Ask for the fee on a net-30 invoice and on a net-60 invoice.
How a factoring buyout moves your account
Payoff letter
Your current factor states the amount needed to close the account, including advances still outstanding.
Payoff and release
The new factor pays that amount. The old factor sends your customers a letter of release and files a UCC-3.
New payment instructions
Your customers receive a new Notice of Assignment, and future invoices follow the factoring process on the new account.
Invoice Factoring vs. Bank Line of Credit vs. Merchant Cash Advance (MCA)
| Feature | Invoice Factoring | Bank Line of Credit | Merchant Cash Advance (MCA) |
|---|---|---|---|
| Typical Approval Speed | Same day, closing in 2–5 days | Weeks to months | One to three days |
| Minimum Credit Score Requirement | No minimum credit score | Strong personal and business credit | Low |
| Maximum Advance Rate | 70%–90% of each invoice | Set by a borrowing base | Based on future card sales |
| Debt Added to Balance Sheet? | No | Yes | Often treated as a purchase of future sales |
| Hidden Fees / Covenants | Fee range of 1%–3% shown upfront | Covenants and annual reviews | Factor rates and daily remittances |
Funding scenarios for choosing a factoring company
Switching factors through a buyout
- Funding Amount
- $127,500
- Industry
- Oilfield equipment rental
- Customer Type
- Rental company billing drilling operators
- Funding Type
- Factoring buyout
- Invoice Terms
- Net-60
- Advance Rate
- 85%
The owner's agreement renewed automatically and advanced below the 70%–90% range.
The SolutionThe new account paid off the prior factor, which sent a letter of release and filed a UCC-3 assignment.
ResultClosing took 5 days, and the owner received $127,500 on $150,000 of invoices.
Comparing two offers on one invoice
- Funding Amount
- $48,000
- Industry
- Food distribution
- Customer Type
- Distributor selling to restaurant groups
- Funding Type
- Invoice factoring
- Invoice Terms
- Net-30
- Advance Rate
- 80%
Two quotes listed different rates on different fee schedules, so the owner could not compare them.
The SolutionThe owner priced both on the same $60,000 invoice paid in 30 days and chose the offer with fewer agreement restrictions.
ResultThe owner received a $48,000 advance; at a 2% fee, the cost on that invoice was $1,200.
Selective factoring for a staffing agency
- Funding Amount
- $36,000
- Industry
- Commercial staffing
- Customer Type
- Agency placing light industrial workers
- Funding Type
- Invoice factoring
- Invoice Terms
- Net-45
- Advance Rate
- 90%
The owner needed weekly payroll funding but did not want to sell every invoice.
The SolutionThe owner chose terms that let the agency sell only the invoices from its two slowest customers.
ResultThe owner received $36,000 on $40,000 of invoices to cover two weeks of payroll.
Who the choosing a factoring company guide is for
First-time factoring clients
You have never factored and want a checklist for the first agreement you read.
Owners leaving a current factor
You want better terms and need to understand how a buyout and a UCC-3 work.
Finance managers comparing offers
You hold two or more quotes and need one method to compare them.
Where IFXI arranges invoice factoring
Texas, Florida, New York, Illinois, Georgia, Ohio, and Pennsylvania.
Frequently asked questions about choosing a factoring company
What questions should I ask a factoring company?
The short answer is to ask about the advance rate, the fee range, recourse, contract term and how you leave. Get each answer in writing, along with the reserve release schedule and the notice period for termination. Then compare the offers on the same invoice.
Can I switch factoring companies before my contract ends?
Yes, you can, through a factoring buyout in which the new factor pays off the old one. Read your termination clause first, since some agreements charge an early exit fee. The old factor then sends a letter of release and files a UCC-3.
Is a lower factoring fee always the better offer?
The short answer is no: a low starting fee can rise as your customer pays slower, and a low advance rate leaves more cash in reserve. Compare fee, advance and contract term together on one invoice. See typical ranges on the pricing page.
What makes an invoice ineligible for factoring?
The short answer is that B2C invoices, invoices more than 90 days past due and invoices to customers with weak payment histories usually do not qualify. Invoices with disputes, offsets or unfinished work also fall out. Check the full list on the eligibility page.
General information about choosing a factoring company. Rates, advance amounts and approval come from IFXI’s lending partner after its review and can change.
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