When you submit an invoice for factoring, funds get wired into your bank account for use to grow your business. But with invoice financing you do not get the full amount right away. You get an ADVANCE of the face value of the invoice. The industry standard in commercial financing is 80 % of the invoice is funded as the advance, while the 20 % is held back in RESERVE until the invoice has been paid by the customer. Once the invoice gets paid the fees are deducted from the reserve and the remainder is forwarded on to you.
While factoring companies normally advance 80 % of the invoice, sometimes the advance is lower (60% – 70%) due to issues associated with certain industries. Other accounts receivable finance companies do provide a higher percentage advance, but check the fine print because the great majority of factoring companies, like ours, have been utilizing the 80% advance for years because it is statistically to most secure method.