An invoice factoring broker matches your receivables to a factoring company that fits your industry, invoice size and customer base, then negotiates the advance rate, fee and contract terms. Factoring turns unpaid invoices into cash in a day or two, and the broker's job is to make sure the contract behind that cash does not cost more than it should.
How factoring works
You do the work, send the invoice, then sell that invoice to a factor. The factor advances most of its value right away and holds the rest as a reserve. When your customer pays the factor, you receive the reserve minus the factor's fee.
Here is a simple example. On a $25,000 invoice with a 90% advance, you receive $22,500 the day after you submit it. If the factor charges 2% and your customer pays within the first fee period, the fee is $500 and the factor releases $2,000 of the reserve to you.
Factoring helps with a problem most owners know well. The Federal Reserve's 2025 Small Business Credit Survey found that the most common reason firms seek financing is meeting operating expenses, cited by 56% of applicants. Waiting 30, 60 or 90 days for a customer to pay is a common cause of that strain.
Typical ranges and terms
United Capital Source's comparison of factoring providers puts typical fees at 1% to 5% of invoice value per month, with advance rates commonly from 80% to 100% depending on the factor and the industry.
| Feature | Common range |
|---|---|
| Advance rate | 80% to 95% for most programs |
| Fee | 1% to 5% of invoice value per month, tiered by how long the invoice stays open |
| Contract length | Month to month up to several years |
| Volume minimums | Some factors require a minimum monthly volume |
| First funding | One to two days after approval; setup often takes one to two weeks |
Recourse and non-recourse
This is the single most important term in a factoring contract.
- Recourse factoring means you buy back any invoice your customer does not pay within a set window. It is cheaper and far more common.
- Non-recourse factoring means the factor absorbs the loss if your customer cannot pay for a covered reason, often only the customer's insolvency. It costs more and usually comes with lower advance rates and stricter customer credit standards.
A good broker reads the non-recourse definition with you. "Non-recourse" that only covers bankruptcy is very different from coverage for any credit failure.
What the broker does
- Matches by industry. Trucking, staffing, construction, government contracting and medical billing each have factors that specialize, with different paperwork and verification steps.
- Compares fee structures. A flat 2% for 30 days and a tiered 1% per 10 days look similar on paper and cost very different amounts if customers pay slowly.
- Reads the extra fees. United Capital Source lists origination, processing, early termination, invoice upload and monthly minimum fees as possible charges. The broker gets each one in writing.
- Negotiates contract terms. Shorter terms, lower minimums and a clear exit are often more valuable than a slightly lower rate.
- Handles existing liens. If a lender already has a blanket lien on your receivables, the broker coordinates a subordination or payoff so the factor can take first position.
What factors look for
- Your customers' credit and payment history, since they are the ones paying
- Clean, verifiable invoices for work already delivered
- Customer concentration, because one customer making up most of your receivables increases risk
- No conflicting liens on accounts receivable
- Your industry's dispute rate, since disputed invoices slow collection
Your own credit matters less than with a loan, which is why factoring works for newer and fast-growing businesses.
Disclosures that help you compare
Several states now require cost disclosures on factoring offers. California requires nonbank providers to give an estimated annual percentage rate on commercial financing of $500,000 or less, and its rules explicitly cover factoring, as American Banker reported. Use those disclosures to line up two offers on equal terms, and ask your broker to explain any gap between the disclosed figure and the quoted fee.
Questions to ask a factoring broker
- Which factors will see my receivables, and do they specialize in my industry?
- What is the advance rate, and how is the fee calculated if a customer pays in 45 or 75 days?
- Is the agreement recourse or non-recourse, and exactly what does non-recourse cover?
- What are all the other fees: setup, per invoice, monthly minimum, termination?
- How long is the contract, and what notice do I need to give to leave?
- Do I have to factor all invoices, or can I choose which ones?
- How will the factor contact my customers?
- How are you paid on this placement?
Behaviours to avoid
Factoring relationships run for months or years, so the contract matters more than the speed. Step back from anyone who asks for an upfront fee before any offer, who pushes you to sign a long-term agreement the same day, or who will not show you the factor's actual contract and fee schedule. Auto-renewal clauses with short cancellation windows are worth a direct question too.
Find a factoring broker
Search the register for invoice factoring to compare brokerages by state and industry. Every entry carries a register number and last checked date. Trucking companies can start with the trucking and logistics page, where freight factoring specialists are grouped together.
Questions owners ask
Is factoring a loan?
No. You sell your invoices to a factor at a discount. The factor advances most of the invoice now and pays the rest, minus its fee, when your customer pays.
Does my credit score matter for factoring?
Less than your customers' credit. Factors care most about whether the businesses you invoice pay reliably.
Will my customers know I am factoring?
Usually, because they are told to pay the factor. Some factors offer non-notification programs for larger, established clients.
Who pays the factoring broker?
Typically the factor, through a referral commission. Ask the broker to confirm it in writing.