Factoring 101

If you’ve never factored before, or even if you have, you’ll find this section helpful.

What Is Invoice Factoring?

When a business needs cash but doesn’t want to borrow money, they can turn to Invoice Factoring. It’s not a bank loan, but a transaction where you sell your outstanding invoices to a factoring company in exchange for cash.

When your business delivers goods or services to a customer on credit terms, you create an accounts receivable invoice. The average customer may wait 30, 60 and in some cases 90 or even more days before paying the invoice. Rather than wait for payment, your business can receive an immediate advance on the face amount of the invoice from a factoring company.

Here’s how it works: Grace Capital Resources, issues you an advance and keeps back a portion in reserve. When your customer pays the invoice, the reserve is released less the factoring fee. There is no interest or loan fee charged as the process involves the assignment of an invoice rather than the creation of debt.

5 Steps to Factoring Invoices

Selling or factoring invoices is very straightforward with 5 main steps:


Invoice your customer for goods sold or services completed.


Submit the invoice to Grace Capital Resources.


Grace Capital Resources gives you an immediate advance on approved customers.


Grace Capital Resources receives payment on the invoice directly from your customer.


Grace Capital Resources releases the reserve balance to your business less the factoring fee.

The amount of the advance, reserve, and factoring fee can vary by industry, customer strength, and how long it takes the customer to pay the invoice. Grace Capital Resources will always spell things out clearly, upfront in the proposal and agreement between your business and us.

How Factoring Helps

Factoring provides immediate access to cash so your business can pay bills, meet payroll, manage overhead, fund expansion, and increase profits.  Over the years, many small businesses and middle market companies have enhanced their growth using accounts receivable financing.

Recently, banks have tightened their lending requirements, leading to more declined business loans or lines of credit. Factoring provides an option even when banks say no, because it is based on the creditworthiness of the customers paying the invoices.  Factoring is used by start-ups through mature companies and strong historical financial performance is not required.

Factoring can also help free up staff time, as the factor is responsible for collecting on the invoice from the customer. Lastly, there’s one more advantage that entrepreneurs will appreciate: factoring does not require you to give up equity in your company.

These are just a few of the many advantages of selling invoices over incurring debt and diluting equity. For more information see our Benefits of Factoring and Frequently Asked Questions.

How to Get Started With Factoring

If you are interested in flexible cash flow solutions with accounts receivable factoring please contact us.  We will discuss your objectives, answer any questions, and forward the factoring application.  If you want to get a head start, just download our Online Factoring Application.