Invoice factoring

Your customer’s credit, not yours.

Factoring is the sale of an unpaid invoice to a third party at a discount. You get most of the money immediately, the factor collects from your customer on the original terms, and you receive the remainder less a fee when they pay. It is not a loan, it does not add debt to your balance sheet, and it is underwritten primarily against the creditworthiness of the company that owes you — which is why it works for young businesses selling to large, solid customers.

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Amount: $25,000 – $10,000,000 facility size
Term: Per invoice; facilities usually run 12 months
Time to funding: 3 – 10 business days to set up; 24 – 48 hours per invoice thereafter
Typical cost: 1.5% – 4% per 30 days on the face value
Collateral: The receivables themselves, under a UCC filing on accounts receivable

Sec. 01 — What it is

In plain language.

You invoice a customer as normal. The factor advances you a percentage of the face value — typically 80% to 92% in food and protein — within a day or two. When your customer pays, the factor releases the reserve less their fee.

Recourse factoring means you carry the loss if your customer never pays; it is cheaper. Non-recourse shifts credit risk to the factor for defined credit events, and costs more. Non-recourse does not cover a dispute over product quality, which in this industry is the more likely reason an invoice goes unpaid.

Notification factoring tells your customer to remit to the factor. Non-notification keeps the arrangement private and costs more. Large foodservice distributors deal with factors constantly and think nothing of it; an independent grocery buyer may read it as distress.

Sec. 02 — What it costs

The price, and how repayment actually works.

Cost is driven by how long your customer takes to pay. A 2% rate against a customer who pays in 30 days is roughly 24% annualised; the same rate against one who pays in 75 is far worse. Underwrite your customers’ payment behaviour, not just their name.

Typical cost

1.5% – 4% per 30 days on the face value

There is no repayment schedule. The invoice settles the transaction when your customer pays.
Advance rate of 80% to 92%, with the reserve released on collection.
Watch for monthly minimums, facility fees and long notice periods on termination. These, not the headline discount, are where a factoring agreement gets expensive.

Sec. 03 — Who it fits

Where this product does its best work.

These are the situations we actually see, in this industry, rather than a generic list of use cases.

Selling to foodservice distributors, regional grocery chains or restaurant groups on net 30 to net 60.
A young wholesaler with strong customers and a balance sheet too thin for a bank line.
Growing faster than retained earnings can fund — every new account makes the cash gap worse, not better.
Seafood and protein importers paying cash or near-cash at origin while selling on terms domestically.
Co-packers and private label producers invoicing a small number of large, creditworthy brands.

Sec. 04 — When this is the wrong product

Three situations where you should not take this.

A broker who never tells you no is selling, not underwriting. If any of these describe you, say so on the first call and we will point you somewhere else — including somewhere we make less money.

You sell retail across a counter

Factoring converts a receivable into cash. A retail butcher shop taking cash and cards has no receivable to convert — the money arrives the same day. There is nothing here for you, and any broker pitching it should be asked which invoices, specifically, they intend to buy.

Your customers are slow, disputed or thinly capitalised

The factor underwrites your customer, so weak customers mean low advance rates, high fees, or a decline. Worse, on recourse factoring you buy the invoice back if they do not pay — so you have taken a fee and still carry the loss. If your receivables ageing has a lot sitting past 60 days, fix collections before financing them.

You cannot tolerate your customers being notified

On most facilities your customer is told to remit to the factor. Large distributors will not blink. But if your business runs on two or three relationships with independent buyers who may read it as a distress signal, weigh that honestly. Non-notification exists and costs more, and it is not available on every file.

Sec. 05 — Worked example

Funding growth at a halal distributor

A halal poultry and lamb distributor in New Jersey supplies two regional grocery chains and a restaurant group. Suppliers required payment within seven days; customers paid on net 45. Eighteen months of history was too thin for a bank line, and every new account made the squeeze worse.

Outcome

The distributor took on a fourth chain account it had previously declined for cash-flow reasons and grew invoiced volume by roughly 40% over the following year. At month twenty the business had enough history and balance sheet to move to a conventional line of credit at 12.5%, which is materially cheaper. Factoring was the right product for a defined period, and the plan always included leaving it.

Illustrative example. Figures are not an offer of credit.

Monthly invoiced volume: $740,000
Average days to collection: 46 days
Advance rate: 88%
Factoring fee: 2.2% per 30 days
Cash advanced against a $200,000 invoice: $176,000 in 24 hours
Reserve released on collection: $19,400
Effective annualised cost: ~27%
Facility size: $900,000

Sec. 06 — What you will need

Documents for this product.

Gathering these before you apply is the single biggest thing you can do to shorten the timeline.

Accounts receivable ageing report
A sample invoice and your standard terms
Customer list with approximate volumes
Articles of organisation and your EIN letter
Three months of bank statements

Sec. 07 — Questions

About invoice factoring.

Is factoring a loan?

No. It is the sale of an asset — your receivable. That distinction matters because it does not add debt to your balance sheet, which can preserve your ability to borrow elsewhere, and because approval turns on your customer’s credit rather than yours.

What happens if my customer refuses to pay over a quality dispute?

You are responsible, on both recourse and non-recourse facilities. Non-recourse covers your customer’s insolvency, not their unhappiness with the product. In protein, quality disputes are the more common failure, so do not assume non-recourse has covered it.

Can I factor some invoices and not others?

Sometimes. Spot factoring lets you choose individual invoices and costs more per invoice. Whole-ledger facilities require you to assign all receivables from approved customers and price better. Read for monthly minimums — a facility with a $30,000 monthly fee minimum is not spot factoring regardless of what it is called.

How is this different from a line of credit?

A line is debt secured against your business, invisible to your customers, and underwritten to your financials. Factoring is a sale, underwritten to your customers, often with notification. If you qualify for a line, it is usually cheaper. Factoring exists for businesses that do not yet.

Sec. 08 — Related

Other products worth comparing.

Line of credit

A pool you draw from and pay back, over and over, sized to your cash cycle.

Working capital

Fast money for a short problem. Expensive, and we will say so out loud.

Term loans

A fixed amount, a fixed payment, and a date the debt is actually gone.

Sec. 09 — Get started

See whether invoice factoring fits.

Two minutes, no hard credit pull, and a straight answer about whether this is the right product for your situation.

Important

Massive Meat Capital is a commercial finance brokerage, not a lender or a bank. Funding is provided by third-party lending partners. Rates, terms, and approval are determined by the funding partner and are subject to underwriting. Figures shown are illustrative and are not an offer of credit. Products are available to business entities only.

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