Invoice factoring is a little-known and under-utilized financial tool. According to the Fed, 88% of small businesses use financing on a regular basis, but only 2% of them rely on factoring. 

It may fly under the radar, but factoring is one of the most affordable types of financing for businesses that don’t qualify for traditional sources such as bank loans and lines of credit. 

It’s also one of the few financing types where a poor credit score or lack of a credit history does not create a barrier between the business and the financing they need.

Invoice factoring allows a business to access cash by selling their invoices to the factor. It can be an ideal form of financing for B2B businesses that have long payment cycles and struggle with frequent cash gaps. 

If you’re considering factoring as a source of financing, you have lots of options. According to IBISWorld data, there were nearly 250 factoring businesses operating across the U.S. in 2025. But to make the best choice for your business, you need to know where to go, what to look for, and what to ask

This article provides the guidance you need to find a factoring partner who is reliable, reputable, and provides the financing that fits your business best.

Step 1: Define your priorities

The factoring market is robust and offerings vary widely, so the smartest first step in choosing a factor is to be clear about what your business needs from one.  

Many businesses make the mistake of focusing solely on the rate they’ll pay to factor invoices. It’s an important part of the decision, but it’s by no means the only element to consider. 

You will also want to think about:

Flexibility. How much flexibility do you want from the factor in terms of the number of invoices you factor from month to month? Would you like the freedom to factor more or fewer invoices depending on changing cash-flow needs, or could you be comfortable with less freedom and flexibility?  

Familiarity. Do you want a factor that knows and works with other companies in your industry? Many businesses insist on working with a factor that understands the way they do business and the customers they do business with.

Liquidity. The amount of cash the factor makes available up front varies widely. Some factors only advance 70% of the invoice value up front and remit the remainder once the customer pays, while other factors advance 90% of the value or more. Think about how much liquidity your business needs 

Commitment. This is one of the most important considerations when choosing a factor. Some require contracts that lock you in for two or more years, while others offer engagements as short as a few months. Think about what will work for you in terms of contract length.

Step 2: Create your short-list

Once you know your priorities, you can begin researching potential factoring companies and compiling a short list. 

Internet research can give you a broad picture of the factoring marketplace, but you will also want to tap into your network to find trusted companies. Reach out to your industry peers and fiduciary advisors, including your bank manager, broker, and accountant. 

You can also check review sites, the Better Business Bureau, and industry forums to see what is being said about the companies you’re interested in.

And finally, take a close look at the factor’s website. Does it provide transparent information about where the business is located and who will be servicing your account? Does it feature case studies and testimonials from satisfied customers? Is it helpful and informative?

Step 3: Ask the right questions

Once you have a short list of factors you think you could be comfortable working with, contact them and start asking the questions that help you determine their honesty, stability, expertise, and commitment. 

• How long have you been in business? 
• Do you know my industry and work with other clients in this space?
• What are some of the unique considerations when working with businesses in my industry?  
• Can I speak to one or more of your current customers? 
• Can I speak to one or more of your past customers who have since moved on?

How the factoring company responds to these questions will tell you a lot about their integrity and what it might be to work with them. 

Step 3: Review the contract 

The process of researching and talking to factoring companies will tell you a lot about how they work and whether they’re right for you. But the contract you need to sign before finalizing the agreement also tells a story, and it’s important to ensure that it lines up with your expectations.  

Here are five phrases that are worth paying close attention to as you review your factoring contract. 

“Automatic renewal.” This phrase indicates that the contract will auto-renew, locking you into another contract, unless you provide written notice within a narrow window of time. This type of clause can indicate that the factor doesn’t have your best interests at heart.

“All-invoice requirements.” Also known as whole-ledger requirements, this phrase indicates that the contract requires you to factor every invoice with every customer; you lose flexibility. This becomes a problem if some customers pay quickly and factoring them adds unnecessary cost.

“Additional fees may apply.” This phrase can indicate the factor charges fees or penalties that can increase the cost of factoring significantly and unexpectedly. A reputable factor will list every fee that can be applied to your account, including discount rates, wire fees, monthly minimums, and credit check fees. 

“Termination fees.” Pay attention to the way the termination clause is phrased. A reasonable termination fee should not be based on the full amount of the factoring facility available to you. It should be based on actual outstanding advances, a percentage of your average monthly factoring volume, or a transparent flat fee.

“Customer notification.” As part of the service, factors manage the payment process with your customers. The terms of these interactions, including any limits on contact frequency, timing, or channels, should be clearly laid out in the contract so that you know what they look like and can feel comfortable with this part of the process. 

Look before you leap (or sign)

Choosing the right factoring partner can take time, but it’s worth doing right. Define your needs before diving in, explore your options through trusted sources, and always review the contract to make sure it reflects your needs and expectations. The time you invest up front will pay for itself many times over over the course of the relationship.

If factoring is on your radar, you can contact us to talk through your options and what to look for.