No. It is the sale of a receivable at a discount rather than borrowed money, although it serves a similar cash-flow purpose.

Will my customers know I use factoring?

In notification factoring, yes — payment is directed to the factor. Non-notification arrangements exist but are less common and have their own requirements.

Can a new business use factoring?

Frequently yes, because the factor's main focus is your customers' credit rather than your operating history.

What does factoring cost?

Costs depend on volume, customer credit, invoice terms and the agreement itself. Always evaluate the effective annualized cost, not just the headline discount rate.

Factoring

Accounts Receivable Factoring

Turn unpaid commercial invoices into working capital when your customers pay on 30, 60 or 90-day terms.

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The short answer

Factoring is the sale of your outstanding commercial invoices to a factoring company at a discount, giving you cash now instead of waiting for customer payment. Approval depends primarily on the creditworthiness of your customers rather than your own balance sheet, which makes it accessible to growing or newer companies. OCS explains the structures and costs and helps you evaluate whether factoring is the right tool.

Reviewed by Joe Maldonado, OCS founder and former commercial banker with more than 20 years of commercial transaction experience.

Customer credit matters most

Factors underwrite the companies that owe you money, not only your own history.

Recourse vs. non-recourse

Who absorbs the loss if an invoice goes unpaid is the key contractual difference.

B2B and government invoices

Factoring applies to commercial and government receivables, not consumer sales.

Cost clarity

Discount rates, advance rates and fees vary widely. We help you read the agreement carefully.

How factoring works, step by step

You deliver goods or services and issue an invoice
The factor verifies the invoice and advances a percentage of its value
Your customer pays the factor according to the invoice terms
The factor releases the reserve balance, minus its discount and fees

Who factoring tends to fit

Factoring is most useful for businesses that invoice other businesses, grow faster than their cash cycle, and have creditworthy customers on extended payment terms — staffing, trucking, distribution, manufacturing, construction subcontracting and professional services are common examples.

It is less appropriate where margins are thin enough that the discount erodes profitability, or where customer relationships make third-party collection undesirable.

Questions to ask before signing

Is the agreement recourse or non-recourse, and what triggers a chargeback?
What is the advance rate and how is the reserve released?
Are there minimum volume commitments or termination fees?
Is the arrangement notification-based, and how will customers be contacted?
How does the total annualized cost compare with a line of credit?

Our role

OCS is not a factoring company. We help you understand whether factoring fits, prepare the information a factor will request, and compare it against other working capital structures so the decision is made with full visibility into cost.

Optimum Capital Services, LLC. is a business consulting and access-to-capital advisory firm. We are not a bank, direct lender or government agency. All financing is subject to third-party lender approval and program eligibility.

FAQ

Frequently asked questions

Start with a Funding Assessment

Share your business situation and we will walk you through which capital options are realistic, what documentation lenders will expect, and how to prepare a stronger submission.

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OCS is an advisory firm. Financing is subject to third-party lender approval and program eligibility.