Awareness Guide
What Is Invoice Factoring? A Plain-English Guide.
How it works, how it differs from a loan, what it costs, and which businesses it’s designed for. Written for CFOs, controllers, and owner-operators who’ve heard the term but want the real explanation before making a decision.
$900M+
Purchased Invoices
48 Hrs
To First Invoice Funded
97%
of Clients Fund Again
Non-Recourse
Options Available
The Plain-English Answer
Invoice Factoring, Defined
Definition
Invoice factoring is when a business sells its unpaid invoices to a funding company — called a factor — in exchange for an immediate advance on most of the invoice's value. The factor then collects payment directly from the business's customer when the invoice comes due. The business gets capital now instead of waiting 30, 60, or 90 days for payment.
The Process
The 4-Step Process
01
You submit an invoice
You issue an invoice to your business customer as normal. You submit it to Sigma through a short online form — no financial statements required at this stage.
02
We verify and approve
A licensed underwriter reviews the invoice and your customer's creditworthiness. Not an algorithm — a human who understands your industry.
03
You receive your advance
We wire the advance — a large percentage of the invoice face value — directly to your operating account. Your cash flow gap is closed.
04
Your customer pays us
When your customer's payment terms come due, they pay Sigma directly. We send you the remaining invoice balance minus our fee. Transaction complete.
A Critical Distinction
Invoice Factoring Is Not a Loan
This distinction matters for your balance sheet, your bank covenants, and your CFO's approval. Factoring is the sale of a receivable — a commercial transaction, not a debt instrument.
AR Funding
Structure
Balance Sheet
Covenant Risk
Approval Based On
Repayment
Personal Guarantee
Invoice Factoring
Sale of a receivable — not borrowing
No debt added — off-balance-sheet
None — doesn't trigger bank covenants
Your customers' creditworthiness
From your customer's payment — not your revenue
Not required
Bank Loan / Line of Credit
Debt instrument — you borrow and repay
Debt appears on balance sheet; affects ratios
May trigger financial covenants; violations costly
Your business credit, financials, operating history
From your operating account, on a schedule
Often required, especially for smaller businesses
Ideal Fit
Who Invoice Factoring Is Designed For
Factoring is not a last resort. It is working capital infrastructure for businesses whose growth is outpacing their cash cycle — which is most B2B businesses at some point.
Strong Fit
B2B businesses with creditworthy customers on net terms
Staffing agencies, manufacturers, distributors, construction subcontractors, professional services firms, trucking companies, healthcare providers with institutional payers. If your customers are businesses or government entities and pay on 30–90 day terms, factoring is designed for exactly your situation.
Strong Fit
Growing businesses whose A/R is outpacing available capital
If you've had to decline contracts because you couldn't fund the upfront costs while waiting for payment, factoring is the mechanism that closes that gap. It scales with your revenue — the more invoices you issue, the more capital you can access.
Weaker Fit
Consumer-facing businesses (B2C)
Factoring advances against B2B invoices — not consumer receivables. Restaurants, retail, and e-commerce businesses generally don't have the invoice structure that factoring requires. An MCA or business line of credit may fit better.
Weaker Fit
Businesses needing general-purpose capital
Factoring unlocks capital from existing receivables — it's an A/R tool, not a general-purpose credit facility. If you need capital for equipment, inventory unrelated to a specific invoice, or operational expenses, a bank line may be the better vehicle.
Pricing
What Does Invoice Factoring Cost?
Sigma's Approach to Fees
Sigma charges one flat discount fee per invoice factored — not a percentage published on a rate sheet, because the right fee depends on your industry's risk profile, your customer's creditworthiness, and your invoice terms. Your exact fee is shown in full before you sign anything. No surprises. No hidden charges. No wire fees, no monthly minimums, no setup fees. To get a real-time estimate of what factoring would cost for your invoice volume, use the Capital Estimator. It won't replace your actual proposal — but it will give you a working number for your own analysis.
The Plain-English Answer
Recourse vs. Non-Recourse Factoring
Most factoring companies offer recourse factoring: if your customer doesn't pay, you are responsible for buying back the invoice. Sigma offers non-recourse factoring as a standard option. Under non-recourse, if your customer becomes insolvent and cannot pay due to financial failure, Sigma absorbs the loss — you keep the advance and owe nothing.
Important Clarification
Non-recourse protects you from customer insolvency — not from invoice disputes. If a customer refuses to pay because of a legitimate dispute over the goods or services delivered, that is not covered by non-recourse protection. Sigma will work with you to resolve disputes, but the non-recourse guarantee applies specifically to your customer's financial inability to pay.
Will my customers know I'm using factoring?
Yes. A Notice of Assignment (NOA) is sent to your customers, directing them to remit payment to Sigma. This is a standard part of the factoring process — it is not unusual for B2B businesses, and your customers have almost certainly encountered it before. Sigma handles all customer contact professionally on your behalf, exactly as you would want them to be treated.
Is there a minimum volume or invoice size?
No minimum invoice size and no minimum monthly volume. You can factor one invoice or a full portfolio — entirely on your schedule. Sigma structures solutions around your actual situation rather than requiring you to hit an arbitrary threshold.
Does factoring affect my existing bank relationship or covenants?
Factoring is a sale of receivables, not a loan — it does not appear on your balance sheet as debt and is structured to coexist with most bank credit facilities. We file a UCC-1 against your receivables, which is standard in factoring and subordinate to most existing bank liens. We review your existing agreements before onboarding to ensure there are no conflicts.
Is there a long-term contract?
No. Our standard agreement is month-to-month with 30 days notice prior to renewal. There is no annual commitment and no termination penalty. We can also build custom exit provisions into your agreement — including clauses tied to specific events, like a bank line of credit becoming available.
How quickly can I get funded?
Your first invoice is funded within 48 hours as we set up your account and verify your first invoice. Once your account is active, subsequent invoices are funded within 4 hours of submission. Many clients receive same-day wires on invoices submitted in the morning.
Do I need strong business credit to qualify?
No. We evaluate your customers’ creditworthiness — not yours. If your customers are creditworthy businesses, government entities, or established institutions, your invoices likely qualify regardless of your own business credit history. This is one of the primary reasons businesses that can’t qualify for bank financing use factoring.
Live Capital Markets
Ready to See If It Fits Your Business?
Take the 5-question fit assessment or run the ROI calculator. Both take under 3 minutes. No email required.
- No personal guarantee
- No credit check on your business
- No long-term contract