How Do You Fund Payroll and Operations While Waiting on Net-30/60/90 Invoices?
A business that bills commercial customers on terms is effectively lending money to those customers. The longer the terms and the faster you grow, the more capital that lending consumes — which is why profitable companies run out of cash.
Short Answer
Finance the receivable itself rather than borrowing against general revenue. Invoice factoring advances a portion of an approved invoice shortly after you bill, with the balance released when your customer pays. An accounts-receivable line or asset-based facility does the same thing as a revolving borrowing base for larger, more established receivable pools. A general-purpose line of credit works when the gap is small and occasional. The right choice depends on invoice size, customer credit quality, and how long your customers actually take to pay.
Why the gap grows when you grow
Costs are incurred before the invoice is issued: payroll, materials, subcontractors, fuel. Payment arrives 30, 60, or 90 days after that. Every additional dollar of new business widens the period you are self-funding. That is why a company can post its best month ever and still miss payroll — growth consumes cash before it produces it.
The practical measure is your cash conversion cycle: days from spending on the job to collecting on it. Financing should be sized against that number, not against the month's revenue.
Comparing the structures
| Structure | Fits when | What is underwritten | Main tradeoff |
|---|---|---|---|
| Invoice factoring | Commercial invoices, recurring billing | Your customer's credit | Customer may be notified; per-invoice fee |
| AR line / asset-based | Larger, diversified receivable pool | Borrowing base of eligible AR | Reporting requirements and covenants |
| Line of credit | Small, occasional timing gaps | Business credit and cash flow | Limit may be too small for a growing AR book |
| Term loan | One-time structural gap | Overall credit and financials | Fixed payment regardless of collection timing |
| Revenue-based advance | Speed matters more than cost | Deposits | Daily or weekly debits during a slow-collection stretch |
Note the last row carefully. Layering a daily debit on top of a 60-day collection cycle puts payments and receipts on mismatched clocks — which is precisely the cash-flow problem you were trying to solve.
What factoring providers look at
- The creditworthiness and payment history of the customers you bill.
- Concentration — how much of your receivable book sits with a single customer.
- Whether the work is fully delivered and the invoice is undisputed.
- Aging: how much of the book is already past 60 or 90 days.
- Whether existing liens or a UCC filing already attach to your receivables.
Illustrative only
A hypothetical staffing firm bills $400,000 a month on Net 60 and runs weekly payroll. It is carrying roughly two months of billing as receivables at any time, so the financing question is not 'how much do we need this week' but 'how much of that two-month float should be financed'.
Operational changes that reduce how much you need to finance
- Invoice the same day work is completed — billing lag is unfinanced float you created yourself.
- Confirm the customer's actual invoice-approval process; many Net-30 relationships are effectively Net-45 because of internal approval steps.
- Offer a modest early-payment discount to the slowest-paying accounts and measure whether it beats the cost of financing.
- Track days sales outstanding by customer, not in aggregate, and renegotiate terms with the worst offenders.
- Keep documentation clean — disputed or incomplete paperwork is the most common reason an invoice is not advanceable.
Frequently Asked Questions
- Will my customers know I am factoring?
- Often yes — many factoring arrangements are notification-based, meaning payment is directed to a lockbox. Non-notification arrangements exist but generally require a stronger overall file. Ask before signing.
- Can I factor only some invoices?
- Sometimes. Spot or selective factoring exists, though whole-ledger arrangements are more common and usually priced better. Availability varies by provider.
Key Takeaways
- Growth on payment terms consumes cash; profitable companies still run short.
- Finance the receivable rather than borrowing against general revenue where possible.
- Factoring is underwritten on your customers' credit, which helps owners with weaker personal credit.
- Daily-debit products fit poorly against 60- and 90-day collection cycles.
- Faster invoicing and cleaner documentation reduce the amount you need to finance at all.
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.
Related Questions
Educational information only. This page is general commercial-finance education and is not legal, tax, or financial advice. First Capital Funding is an independent commercial finance brokerage and business consulting firm; it does not issue loans or advances. All financing is subject to approval by independent third-party funding and lending providers, and program availability, pricing, and qualification requirements vary by provider and applicant profile.