Invoice factoring is a form of financing where your business sells unpaid invoices to a factoring company (called a "factor") at a discount. Instead of waiting 30, 60, or 90 days for customers to pay, you receive the majority of the invoice value immediately—typically 80% to 95%—and the factor collects payment directly from your customer. This is especially valuable for B2B and B2G (government contract) businesses that deal with long payment cycles.
The factor charges a factoring fee—usually 1% to 3% of the invoice value—which is deducted when they advance funds or collect payment. You also receive the remaining balance (the "reserve") once the customer pays the factor, minus their fee. Invoice factoring works in two main forms: spot factoring (individual invoices) and contract factoring (ongoing agreements).
Most factoring arrangements are non-recourse, meaning the factor assumes the credit risk of your customer. If a customer becomes insolvent and cannot pay, you are not responsible—the factor bears the loss. Recourse factoring places that risk back on you if the customer defaults, typically at a lower fee rate. Get Vault Capital specializes in helping businesses unlock working capital from receivables without the overhead of traditional lending.