No. It is the sale of a receivable at a discount. That is why eligibility depends so heavily on who owes the invoice rather than on the selling business alone.

Will my customers know I am factoring?

Often yes, because payment is typically redirected to the factor. Notification practices differ between facilities, so raise it during the discussion if it matters to your relationships.

Does non-recourse mean I am protected if a customer simply refuses to pay?

Usually not. Most non-recourse agreements cover a defined credit event such as insolvency, not disputes, short-pays, or slow payment. The contract definition controls.

Does First Capital purchase invoices?

First Capital Funding is an independent commercial finance brokerage and placement desk. It does not issue loans, leases, or advances. Every credit decision, price, and term is set by the independent third-party provider.

What Does Invoice Factoring Cost, and What Does It Take to Qualify?

By First Capital FundingPublished September 1, 2026Last reviewed September 1, 2026

Factoring is the sale of a business-to-business receivable at a discount, not a loan. That single distinction drives everything else about how it is priced, who is underwritten, and which invoices are eligible.

Short Answer

A factor advances a portion of an eligible invoice's face value, holds the remainder in reserve, collects from your customer, and releases the reserve less its fee. Pricing is generally built from an advance rate, a factor fee tied to how long the invoice stays outstanding, and any account or wire charges. Recourse factoring leaves the credit risk of non-payment with your business; non-recourse shifts a defined, contract-specific slice of that risk to the factor — usually only your customer's insolvency, not an ordinary dispute or slow payment. Qualification rests heavily on your customers' creditworthiness and on whether the invoice represents completed, undisputed, unencumbered work.

How factoring pricing is built

Advance rate — the share of the invoice face value released up front.
Reserve — the remainder held until your customer pays, released net of fees.
Factor fee — typically tied to how many days the invoice remains outstanding, so slow-paying customers cost more.
Ancillary charges — account setup, wire or ACH fees, minimum volume terms, and termination provisions.

Because the fee is usually time-based, the real cost of a factoring relationship is determined by your customers' payment behavior as much as by the quoted rate. Two facilities quoted identically can cost very differently if one customer base pays in thirty days and the other in seventy.

Read the agreement's economics, not just the rate

Minimum monthly volume requirements, notice periods for termination, and whether the facility is whole-ledger or selective invoices can affect total cost more than the headline fee.

Recourse versus non-recourse, honestly described

	Recourse	Non-recourse
If the customer never pays	Your business buys the invoice back or replaces it	The factor absorbs the loss for the specific risks named in the contract
Typical covered risk	None transferred	Commonly customer insolvency only
Disputes, short-pays, quality claims	Your responsibility	Almost always still your responsibility
Relative pricing	Generally lower	Generally higher for the protection bought

Non-recourse is frequently marketed as protection against non-payment generally. In most agreements it is narrower than that. Read the definition of the covered event in the contract you are actually being offered, because that clause is the product.

Which invoices qualify

Business-to-business or business-to-government invoices. Consumer receivables are generally not factorable.
Work that is completed and delivered, and an invoice the customer has no open dispute over.
Customers with acceptable credit — the factor is underwriting them, not only you.
Receivables not already pledged to another lender, or with an intercreditor arrangement in place.
Invoices free of progress-billing, offset, or retainage complications, or priced for them where they exist.

What a factor reviews

Accounts receivable aging and customer concentration.
Sample invoices with supporting delivery or completion documentation.
Existing UCC filings and any current lender relationships.
Bank statements, entity documents, and ownership information.
Dilution history — credits, short-pays, and returns against prior billing.

Heavy concentration in one customer is not automatically disqualifying, but it is always a pricing and structure conversation. So is a history of disputes, because dilution is the factor's primary loss driver outside of insolvency.

When factoring is the wrong tool

The business bills consumers rather than other businesses.
Revenue arrives at the point of sale, so there is no receivable to sell.
The need is a fixed asset purchase, which matches an equipment or real estate structure instead.
The customer relationship cannot tolerate a third party involved in collections — though notification practices vary by factor and should be discussed up front.

Frequently Asked Questions

Is factoring a loan?: No. It is the sale of a receivable at a discount. That is why eligibility depends so heavily on who owes the invoice rather than on the selling business alone.
Will my customers know I am factoring?: Often yes, because payment is typically redirected to the factor. Notification practices differ between facilities, so raise it during the discussion if it matters to your relationships.
Does non-recourse mean I am protected if a customer simply refuses to pay?: Usually not. Most non-recourse agreements cover a defined credit event such as insolvency, not disputes, short-pays, or slow payment. The contract definition controls.
Does First Capital purchase invoices?: First Capital Funding is an independent commercial finance brokerage and placement desk. It does not issue loans, leases, or advances. Every credit decision, price, and term is set by the independent third-party provider.

Key Takeaways

Factoring is a receivable sale, priced on advance rate, time outstanding, and fees.
Your customers' credit is underwritten alongside your business.
Non-recourse is narrower than it sounds — read the covered-event clause.
Dilution, concentration, and existing UCC filings shape structure and pricing.
Consumer receivables and point-of-sale revenue are not factoring candidates.

Programs That May Fit

Not sure which option fits your business?

First Capital Funding is a commercial finance brokerage. We review your financing request and help identify potential options from our network of third-party funding and lending providers. No approval is promised or implied — every credit decision, rate, and term is set by the provider.

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