How invoice factoring works, start to finish, with real numbers
No jargon and no hand waving. Here is exactly what happens, who signs what, and what it costs.
Two businesses and an invoice
Say you run a supply company. You sell fifty thousand dollars of goods or services to a manufacturer, and that manufacturer is a good customer, they have never stiffed you, but they pay on net 45 because that is their policy and they are not changing it for you. In factoring language you are the Client and they are the Account Debtor. That is not us being fancy, those are the terms in the contract, so you should know them.
You have already spent the money to fulfill that order. The goods or services are delivered, the labor is paid, and the invoice is sitting in your accounting system doing nothing for 45 days. That invoice is an asset. It is worth something today, not just at maturity, and what we do is buy it from you at a discount so you get most of the value now.
What actually happens
You apply, we underwrite
We look at two things, and the second one matters more than the first. We look at your business, and we look at who your customers are, because the person who has to actually pay us is your customer, not you. A company with weak credit and excellent customers is a deal we will do. A company with perfect credit selling to customers who do not pay is a deal we will not.
You sign the agreement and we file a UCC-1
The Factoring Agreement is the master contract. It covers everything, and it does not obligate you to sell us any particular invoice or obligate us to buy one. Alongside it we file a UCC-1 financing statement, which is a public filing that puts our interest in your receivables on record. Every factor and every asset based lender does this. If somebody tells you they do not, they are either lying or they are about to lose their money.
Your customer gets a Notice of Assignment
This is the piece that makes people nervous, so let us be direct about it. The Notice of Assignment tells your customer's accounts payable department that the invoice has been sold to us and that payment goes to us. It is required. Under the Uniform Commercial Code, an account debtor who has not been properly notified can pay the original seller and be done, and then we have paid you for an invoice we cannot collect. So the notice is not optional and no legitimate factor will skip it.
Does your customer care? Usually not. Large companies see assignment notices constantly and their AP systems are built to handle them. What they care about is that the remittance instructions are clear and that somebody answers the phone when they call with a question.
You submit invoices on a Schedule of Accounts
When you want to fund, you send a Schedule of Accounts, which is a one page list of the invoices you are selling us that day, along with the invoice copies and proof of delivery or acceptance. Signing that schedule is the legal act that transfers the invoices. You can send one a day or one a month.
We verify and we fund
For anything over our verification threshold we confirm with your customer that the goods or services were delivered, that they were accepted, and that no credit or dispute is sitting against them. Then we wire up to 90 percent. On a fifty thousand dollar invoice at the top of the range that is forty five thousand dollars, and it typically lands within one business day of an approved schedule.
Your customer pays us on their normal terms
Nothing about their obligation changes. Same amount, same due date, same contract. They send a check to our remittance address or they send an ACH or a wire to our account. If they accidentally pay you instead, and it happens, you forward it to us and we sort it out.
We release the reserve
When their payment clears we release the reserve we were holding, less our fee. That is the end of the transaction. The reserve is your money the whole time, we are just holding it against disputes, short payments and credits, which is the same reason your customer holds retainage on a contractor.
What it costs, on a real invoice
An example. Fifty thousand dollar invoice, net 45 terms, funded at a 90 percent advance, customer pays on day 38.
| Line | Amount |
|---|---|
| Invoice face value | $50,000.00 |
| Advance to you on day 1, 90 percent | $45,000.00 |
| Reserve held, 10 percent | $5,000.00 |
| Discount fee, collected on day 38, 3.5 percent | ($1,750.00) |
| Reserve released when they pay | $3,250.00 |
| Total you receive | $48,250.00 |
| Total cost | $1,750.00 |
The fee is tiered by how long the invoice takes to collect, and it is calculated on the face value, not on the advance. Fees start at 2.5 percent for the first 30 days and add roughly 1 percent for each additional 15 days. Every deal is priced on its own, so your advance rate and your fee tiers are set in your term sheet before you sign anything.
| Days from funding to collection | Fee | On a $50,000 invoice |
|---|---|---|
| 1 to 30 | 2.5% | $1,250 |
| 31 to 45 | 3.5% | $1,750 |
| 46 to 60 | 4.5% | $2,250 |
| 61 to 75 | 5.5% | $2,750 |
| 76 to 90 | 6.5% | $3,250 |
Indicative tiers, current as of August 2026. Actual pricing is set per deal and stated in your term sheet. All facilities subject to credit approval.
Notice that the reserve always covers the fee. On a schedule like this one the most we can charge inside the recourse window is 6.5 percent, and the reserve is at least 10 percent. So on an invoice that gets collected you never write us a check. The fee comes out of money we are already holding for you.
Recourse, in plain English
We are a recourse factor. That means if your customer does not pay us inside the recourse period, which is typically 90 days and is set in your agreement, you buy the invoice back. We are not underwriting your customer's credit risk and we are not going to pretend we are.
Non-recourse exists, and factors who offer it charge half a point to a full point more for it, and here is the thing most people miss about it. Non-recourse almost never means what business owners think it means. It typically covers one thing, which is your customer going insolvent or filing bankruptcy. It does not cover a dispute, it does not cover a short payment, it does not cover a customer who just decides the shipment was late and takes a deduction. Those all come back to you either way.
So we price honestly for what we are actually doing. You keep the credit risk on customers you chose, we take the collection work and the timing risk, and you pay less than you would for a guarantee that mostly does not apply.
We do underwrite your customers before we buy, and we will tell you when we do not like one. That is not us protecting ourselves at your expense. A customer we will not fund is usually a customer you should be worried about.
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BZKNEES FACTORING · B2B invoice factoring
contact@bzkneesfactoring.com
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Every rate, advance percentage and timeline published on this site is indicative and subject to underwriting and credit approval. Nothing here is an offer of credit or legal, tax or accounting advice.
BZKNEES FACTORING 