What is invoice factoring? A simple guide.

3 minute readUpdated October 13, 2026By the NorthAxis Capital team

Invoice factoring is when you sell your unpaid invoices to a company called a factor. The factor pays you most of the money now, then collects from your customer later.

How does invoice factoring work?

1. You do the work and send your customer an invoice.
2. You sell that invoice to a factoring company.
3. The factor pays you most of it right away, often 80% to 90%.
4. Your customer pays the factor when the invoice is due.
5. The factor sends you the rest, minus its discount.

An example with real numbers

So instead of waiting two months, you have $17,000 to pay staff and suppliers today.

Who is invoice factoring for?

It works best if:

• You sell to other businesses, not the public.
• Your customers take 30, 60 or 90 days to pay.
• Your customers pay reliably, even if slowly.
• You are growing fast and need cash to take on more work.

Good news: the factor cares most about your customers’ credit, not just yours.

Recourse or non-recourse?

• Recourse: if your customer never pays, you must cover it. This is the most common kind.
• Non-recourse: the factor takes on more of the risk if your customer can’t pay. It usually costs more.

Invoice factoring vs. invoice financing

Pros and cons

Pros: cash in days, no new loan payment, and it can grow as your sales grow.

Cons: you keep less of each invoice, and your customers will usually know a factor is involved.

Want to see if invoice factoring fits your business? Tell us about your invoices.