Single Invoice Factoring: Selling One Invoice for Cash

How single invoice factoring works

You sell one invoice to a factor, receive most of its value upfront, and the factor collects from your customer. When the customer pays, you receive the remainder minus the factor's fee.

Here is the flow:

1. You deliver goods or services and issue an invoice to a business customer.
2. You sell that invoice to a factoring company.
3. The factor advances a percentage of the invoice, often most of it.
4. The customer pays the factor directly, usually after being notified.
5. The factor sends you the balance, less its fee.

Factoring is the sale of a receivable, not a loan, although the effect on cash flow looks similar. For the overall concept, see understanding invoice factoring and invoice factoring.

Why a business would factor just one invoice

Single invoice factoring suits a one-time cash gap, such as a large order that must be paid for before the customer pays you, without a long-term contract.

Traditional factoring often requires a contract covering all or most invoices, minimum volumes and monthly fees. Spot or single-invoice factoring lets you choose an invoice when you need cash. It suits seasonal or irregular businesses and owners who want to keep the option open.

Here is an illustrative example. A staffing firm bills a corporate client $60,000, due in 60 days. Payroll for the temporary workers is due weekly. Factoring that one invoice puts cash in hand to meet payroll without waiting for the client.

What it costs

Factors charge a fee based on the invoice amount and the time until payment. Single-invoice deals are usually priced higher than long-term contracts.

Fees are commonly expressed as a percentage of the invoice per period, such as per 30 days, and may include other charges. Because the factor takes on one customer's credit risk and has no volume commitment from you, pricing for a single invoice can be higher.

Illustrative example: on a $60,000 invoice, a 3 percent fee for the first 30 days and 1 percent for each additional 10 days would add up to $3,000 after 30 days and $4,800 or more after 60 days. Always convert the fee to an annual rate so you can compare it with other options. Ask for every fee in writing, including processing, ACH and any minimums. Our APR guide shows the conversion.

Recourse, notification and your customer relationship

Check whether the factor can come back to you if your customer does not pay (recourse), and whether your customer will be contacted.

In a recourse arrangement, you must buy back or replace an invoice that goes unpaid. In non-recourse, the factor bears more of the risk, but it costs more and has strict conditions. Understand which applies.

In most factoring, your customer is told to pay the factor. Some owners worry this signals financial trouble. Others find it routine, since many industries use factoring. If your customer relationship is delicate, ask whether notification can be avoided, though that generally raises the price.

Who it does not fit

Factoring requires invoices to business or government customers with good payment history. It does not work for consumer sales, cash businesses or disputed invoices.

The factor underwrites your customer, not just you. If the customer is slow to pay, disputes frequently or has weak credit, the factor may decline the invoice or charge more. Retail shops, restaurants and most consumer-facing businesses do not generate invoices to factor.

Also consider cost against margin. If your profit on the job is 12 percent and the factoring fee is 8 percent, your profit is nearly gone. Use the cash flow vs. profit framework to check.

Closest alternatives through ROI Funder

ROI Funder does not place invoice factoring. Working capital, a line of credit or revenue-based financing can solve a similar cash gap based on your business revenue.

If your goal is to cover payroll and supplier bills while invoices are outstanding, there are other tools. A business line of credit lets you draw when needed and repay when the customer pays, and working capital gives a lump sum, in some cases the same business day on approved, complete files. These look at your business revenue and bank statements, not at each invoice.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. It is not a fit if your need is tied to one specific invoice and your revenue is below that range. For a side-by-side view, see line of credit vs. invoice financing and what invoice financing is.