Banking
Invoice Factoring
Quick definition
Selling unpaid invoices to a factor for immediate cash (at a discount), transferring collection responsibility.
Factoring lets you convert AR into cash immediately — the factor pays 80-95% of the invoice value upfront, then collects from your customer and remits the balance (less their fee, usually 1-5% of invoice). Useful when AR is slow but you need cash NOW. Differs from invoice financing (you keep collection responsibility). Often expensive vs other forms of credit; best for short-term emergencies or specific accounts where customer credit is weak.
Related banking terms
Treasury Management
The discipline of managing a company's cash, liquidity, banking relationships, and short-term investments.
Sweep Account
Bank arrangement that automatically transfers excess cash from a checking account into a higher-yielding investment account.
FDIC Limits ($250K)
Federal Deposit Insurance Corporation insurance covers $250K per depositor per FDIC-insured bank per ownership category.
Money Market Fund
Mutual fund holding short-term, highly liquid debt (T-bills, commercial paper, repos) targeting stable $1/share value plus yield.
Frequently asked questions
- What is Invoice Factoring?
- Factoring lets you convert AR into cash immediately — the factor pays 80-95% of the invoice value upfront, then collects from your customer and remits the balance (less their fee, usually 1-5% of invoice). Useful when AR is slow but you need cash NOW. Differs from invoice financing (you keep collection responsibility). Often expensive vs other forms of credit; best for short-term emergencies or specific accounts where customer credit is weak.
- Why is Invoice Factoring important for startups?
- Invoice Factoring is a banking concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does Invoice Factoring belong to?
- Invoice Factoring is a Banking term in the StartupCFO finance glossary — alongside other banking concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about Invoice Factoring?
- Beyond this definition, see the related banking terms below, or explore StartupCFO's insights and tools that put Invoice Factoring in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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