Small Business Factoring

There are many ways to maintain a positive cash flow when growing your business and dealing with accounts receivable issues. One popular way to increase cash flow is invoice factoring. Invoice factoring is the practice of selling your accounts receivable (invoices) at a discount to another company. You get the money from the company that you sold your accounts receivable to, and they become responsible for collecting the outstanding invoice amount.
The reason many businesses get cash from unpaid invoices is to ensure the continuous flow of cash to the business. Essentially, businesses that use invoice factoring focus on having most of the money now rather than all of it later. It can take time to collect on an invoice, so when a company finances its accounts receivable, it gets its money faster and without the hassle of the collection process.
It’s especially important for small businesses to have working capital available through small business factoring. You can use the money to purchase new equipment, pay your bills, or cover payroll. The alternative is to chase down the customer for payment, deferring all other activities while the money is being collected.
With small business factoring, you can meet your business expenses without worrying about when your clients will pay. It’s the business loan alternative that provides businesses with predictable cash flow and positions them for growth.

Invoice factoring is often confused with business invoice financing, also known as accounts receivable financing, but they’re different things. Invoice factoring involves the sale of your receivables, so there’s nothing to pay back. Invoice financing for small business is, as the name implies, financing. You are taking on a loan, so debt and interest accrue. Another key distinction is who collects. With factoring, your factor collects for you. With invoice-based financing, you manage collections.
With that being said, if you’re looking for invoice financing without a long-term contract, you’re probably a good candidate for factoring with Charter Capital even though it’s a different invoice funding solution.

Small businesses can typically receive funding within 24 to 48 hours of submitting their first invoice to Charter Capital, with same-day invoice funding available once an account is set up.

No. Charter Capital evaluates the creditworthiness of your customers rather than your own business credit, so small businesses with limited credit history or a short time in operation can still qualify. Even startups that are actively invoicing B2B clients can get approved.

The funding available through invoice factoring scales with your invoice volume, since Charter Capital advances a percentage of each invoice you choose to factor. Advances are typically around 90 percent of the invoice value, though can go up to 98 percent. Our typical client generates somewhere between $20,000 and $1,500,000 per month in sales, meaning it’s possible to receive factoring advances that total over $1 million per month.

When getting started with factoring, small business documentation is minimal. It typically requires basic business information and the invoices you want to factor; unlike a bank loan, small businesses don’t need to submit a business plan, tax returns, or audited financial statements.

Your customers will receive a notice of assignment (NOA) that instructs them to remit payment to Charter Capital. For most, this comes across as nothing more than an everyday remittance update. If they need to speak with someone to make their payment, our white-glove collections team will handle the transaction with the same professional courtesy and care your internal team would.

Looking at the types of businesses using invoice factoring in the US, this funding option is particularly beneficial for industries with long billing cycles and frequent cash flow challenges. Sectors like transportation, staffing, security, janitorial, and maintenance often face delays of 30, 60, or even 90 days before clients pay their invoices. By selling these outstanding invoices to a factoring company at a discount, small businesses gain immediate access to working capital, enabling them to cover essential expenses without taking on debt. For instance, trucking companies are struggling with delayed payments. In these cases, freight bill factoring provides a reliable cash flow solution by converting unpaid invoices into immediate working capital.
Freight brokers can also benefit from tailored solutions like freight broker factoring, which helps ensure timely carrier payments and smooth cash flow between shipments.
These industries typically encounter high costs and regular operational demands, making cash flow consistency essential. Factoring provides stability for these businesses, with options like recourse and non-recourse factoring to meet specific needs. For instance, non-recourse factoring transfers the risk of unpaid invoices to the factoring company, which can be especially advantageous for businesses concerned about payment reliability.
Moreover, small businesses with limited credit history or only a short time in business can access factoring, as it relies on the customer’s creditworthiness rather than the business’s own financial standing. This allows newer businesses to manage cash flow and invest in their growth, even in the face of delayed payments from clients.

Bank financing has been difficult for small business owners since the beginning. This is especially true today because many small businesses are just unable to qualify for traditional business loans. The requirements of getting financing from a traditional lender are a major barrier. The company must typically have substantial assets, years of profitability, and audited financial reports.
Many business owners don’t consider alternative financing options. They are unaware that there are alternatives to traditional bank loans and SBA loans. After being rejected, they often give up hope of ever getting financing. The truth is, these alternatives might be better for your company than traditional financing. When you weigh the advantages and disadvantages, invoice factoring for small businesses in the USA often comes out ahead on speed and accessibility.
The biggest challenge for nearly all companies is their accounts receivable—the 30- to 60-day wait until the invoice is paid. During this waiting period, the accounts payable become due, and employees and suppliers need to be paid. This leads many businesses into a “cash flow crunch.” While this is fine for large, well-capitalized companies with adequate banking reserves, it is a significant challenge that many business owners face every day.

A factor rate is the percentage charged by a factoring company to advance funds against unpaid invoices. It typically ranges from one to five percent per invoice, depending on risk factors and the terms of the factoring agreement. At Charter Capital, most of our clients have rates between one and three percent.
Some factoring companies offer tiered pricing, where higher invoice volumes result in lower rates. The discount rate refers to the total cost deducted from the invoice before the final payment is released.

When comparing recourse vs non-recourse factoring, the difference between these options significantly affects pricing for small businesses. Recourse factoring offers lower rates but requires businesses to repurchase invoices when the customer doesn’t pay. Non-recourse factoring shifts the risk to the factoring company, leading to higher fees due to increased liability.

Since many factoring companies structure fees differently, reviewing contract terms is essential. The best factoring choice depends on cash flow needs and risk tolerance. Understanding these costs ensures businesses make informed decisions while maintaining steady cash flow.

When comparing sources of working capital for small business, invoice factoring stands out because it converts unpaid B2B invoices into immediate cash without adding debt. Other invoice factoring alternatives, such as business lines of credit or invoice financing, may have stricter credit requirements or create a repayment obligation.
For companies seeking cash flow financing for small businesses, factoring can also provide greater flexibility because funding scales with invoice volume. Charter Capital offers fast invoice funding for small business needs, with same-day funding available once your account is established and no long-term contract or minimum monthly volume requirement.