Funding types / Invoice factoring
Invoice factoring, explained in plain English
Turn eligible unpaid invoices into working cash by selling them at a discount. Goldhour helps you compare partner offers before you sign.
In plain English
Invoice factoring is the sale of eligible unpaid invoices to a funding partner at a discount. The partner advances part of the invoice value, then collects payment from your customer, subject to the agreement. If the customer pays, the partner releases any remaining reserve after deducting agreed fees. This is not a loan, but the sale terms, customer notices, and responsibility if an invoice is unpaid can vary by offer.
How it works
From apply to paid off.
01
Apply and share the basics
Use one application to tell Goldhour about your business and the invoices you may want to factor. These are typical fit markers, not automatic cutoffs.
02
Review eligible invoices
A funding partner reviews the invoices and the customers who owe them. They may look at invoice documentation, delivery or completion records, disputes, payment history, and whether the customer is creditworthy under that partner's criteria.
03
Compare the offer before signing
Goldhour lays out the offer in plain English, including the cash that lands, each fee by name, the reserve, the total expected proceeds, payment and collection mechanics, term or duration, and what happens if the customer pays late or does not pay.
04
Sell the invoices and receive an advance
If you accept, you assign or sell the specified invoices under the agreement. The partner sends the agreed advance. Depending on the arrangement, your customer may be notified and may be directed to pay the partner.
05
Customer pays and the transaction is settled
When your customer pays, the partner applies the agreed discount and other disclosed charges, then releases any remaining reserve if the offer provides one. Check the agreement for recourse, chargebacks, disputed invoices, late payment, and any balance you could owe.
How it is priced
Factoring pricing is generally tied to the invoice amount and how long it takes the customer to pay. A partner may advance a portion of the invoice value, retain a reserve, and deduct a discount or other clearly named charges when the invoice is settled. For example, the basic mechanics are invoice value minus the agreed discount and disclosed charges, with any reserve handled under the offer terms. Fees, advance amounts, reserve rules, and time-based charges vary by partner and offer. Use the Offer Decoder to review the actual figures and settlement conditions in any offer you receive.
Reading the offer
Enter the offer in Goldhour's Offer Decoder to translate its terms into plain English. For invoice factoring, check the invoice amount being sold, cash advanced, reserve amount and release conditions, every discount or fee by name, expected net proceeds, how long charges can accrue, who collects from the customer, whether the customer is notified, and what happens with late, disputed, short-paid, or unpaid invoices. Read the recourse or repurchase language closely, including any chargeback rights. Compare offers using the same invoice and payment assumptions, and confirm the written agreement matches the breakdown before signing.
Open the Offer DecoderBest for
- Businesses that have completed work or delivered goods and are waiting on customers to pay invoices.
- Owners who need working cash while customer payment terms run their course.
- Businesses with commercial customers and clear records supporting the invoices.
- Operators who want to evaluate a sale of invoices rather than add a traditional payment schedule tied to a loan.
- Owners who want to compare partner offers side by side before deciding.
Not ideal when
- Your invoices are disputed, incomplete, not yet earned, or difficult to document.
- Your customers pay promptly, so the cost and administration may not be worthwhile.
- You need to keep customer payment arrangements entirely unchanged, but the offer requires customer notice or redirected payment.
- You cannot accept the possibility of reserve holds, chargebacks, repurchase obligations, or other recourse terms.
- Your business needs cash for expenses that cannot be supported by eligible invoices.
What it does well
- Can make cash available against eligible invoices before customers pay.
- Funding is connected to specific invoices and customer payments.
- May help manage working capital gaps caused by customer payment terms.
- Goldhour explains partner offers side by side before you sign.
- One application, one company calls you, and your information is not sold or shared.
- The same named Goldhour specialist stays with you before and after funding.
Trade-offs to weigh
- The cash received is less than the invoice's face value because the partner takes a discount and may charge other disclosed fees.
- A reserve may be held until the customer pays and the account is reconciled.
- Customer notification or payment redirection may affect how you manage customer relationships.
- With recourse arrangements, you may have to cover an invoice that is unpaid, disputed, or otherwise ineligible under the agreement.
- Invoice review, documentation, and ongoing reconciliation can add administrative work.
- The total cost can depend on how long the customer takes to pay, depending on the offer terms.
Compared to the others
How it stacks up.
vs. A business term loan
Invoice factoring is structured as a sale of specified unpaid invoices at a discount, not a loan. A term loan instead provides funds that are repaid under a loan agreement. Compare the obligation, cost, and collection terms that apply to your situation.
vs. A line of credit
A line of credit provides access to borrowing up to a limit, with repayment terms set by its agreement. Factoring is tied to eligible invoices and customer payments, and may involve customer notice, reserves, and invoice-level fees.
vs. Revenue-based funding
Revenue-based funding is generally repaid from a share of future business receipts under its agreement. Factoring instead involves selling specified existing invoices, with settlement connected to the customers paying those invoices.
vs. Waiting for customers to pay
Waiting avoids a factoring discount and related charges, but leaves the invoice cash unavailable until the customer pays. Factoring may bring some cash forward, in exchange for its cost, terms, and collection process.
Ask before you sign
Six questions worth asking.
- Which invoices are being sold, and what documentation must I provide?
- How much cash will land, what reserve is held, and when can the reserve be released?
- What is every discount, fee, and possible charge, and can charges change with payment timing?
- Will my customers be notified, and where will they send payment?
- Is the arrangement with recourse or without recourse, and what exactly happens if an invoice is late, disputed, short-paid, or unpaid?
- Are there minimum volumes, exclusivity terms, termination conditions, or other obligations after these invoices are settled?
Have these ready
- Basic business and owner information for the application.
- The unpaid invoices you want reviewed and their due dates.
- Purchase orders, contracts, delivery records, or proof that the work was completed.
- Customer payment history and any known disputes or short payments.
- Business bank statements or other records the funding partner requests.
- Questions about customer notice, reserves, recourse, fees, and settlement.
Questions
Is invoice factoring a loan?
Invoice factoring is generally structured as the sale of eligible unpaid invoices at a discount, not a loan. The agreement determines how invoices are assigned, how collections work, and whether you have any obligations if an invoice is not paid.
How does invoice factoring work?
A funding partner reviews eligible invoices and may advance part of their value. The customer pays the partner under the agreed collection process. The partner deducts the agreed discount and disclosed charges, then releases any remaining reserve if the offer provides one.
Will my customer know I am factoring an invoice?
It depends on the arrangement. Some offers require customer notice or direct payment to the partner. Ask how collections work before signing, and check that the agreement matches the explanation you received.
What happens if my customer pays late or does not pay?
The result depends on the offer's recourse and chargeback terms. You could have to repurchase or replace an invoice, cover a shortfall, or pay additional disclosed charges. Review the exact language for late, disputed, short-paid, and unpaid invoices.
How much can I receive from an invoice?
The amount depends on the invoice, the partner's advance and reserve rules, and the discount and charges in the offer. Goldhour helps show the cash that lands and what may be released later, using the written offer terms.
How is invoice factoring priced?
A partner generally charges a discount on the invoice value, and some offers include other disclosed charges. Pricing may depend on how long the customer takes to pay. Check the Offer Decoder and the agreement for every charge and how it is calculated.
Which businesses may be a fit?
Invoice factoring may suit businesses that have completed work or delivered goods and have eligible unpaid invoices from customers. Owners we usually work with have 1+ year in business, 550+ credit, and $50K+ in monthly revenue. These are typical fit markers, not rejections or promises of an offer.
How much funding can Goldhour help me explore?
Goldhour works with funding partners on business funding options up to $2M. What may be available depends on the business, invoices, partner review, and written offer terms.
Make the most of the light.
One short application. One company calls you. Every offer laid out in plain English before you sign.