How does a factoring company make money?

Factoring companies charge a factoring fee — typically 1–5% of the invoice value per month — plus potential admin and service fees. They earn the difference between the cash advanced and the amount collected from customers.

Is a factoring company the same as a bank?

No. Factoring companies are specialist finance providers, not banks. They purchase invoices rather than providing loans, so the financing does not appear as debt on your balance sheet.

What industries use factoring companies?

Factoring companies serve many industries but are particularly common in construction, manufacturing, logistics, recruitment, wholesale, and professional services — where long payment terms are typical.

Are there alternatives to factoring companies?

Yes. Fundtap is a modern alternative that provides on-demand invoice finance without the whole-ledger requirements, customer notifications, or lock-in contracts typical of traditional factoring companies.

What Is a Factoring Company & How Does One Help Your Business?

Q: What is a factoring company?

A factoring company is a finance provider that buys outstanding invoices from businesses and provides an immediate cash advance. The factoring company then collects payment from the business's customers.

What Is a Factoring Company?

A factoring company is a business that buys unpaid invoices from other businesses in exchange for immediate cash. Instead of waiting for customers to pay, a business sells its invoices to the factoring company and receives most of the money upfront — typically 70–90% of the invoice value.

The factoring company then chases payment from the original customers. Once paid, the business receives the remaining balance minus a service fee.

How Factoring Companies Operate

Assess your invoices: The factoring company reviews your customers' creditworthiness before agreeing to purchase invoices.
Advance funds: They advance a percentage of the invoice value — usually 70–90% — within 24–48 hours.
Collect payment: The factoring company contacts your customers and collects payment on the invoice due date.
Release the reserve: Once your customer pays, you receive the balance minus the factoring fee.

How to Choose a Factoring Company

Not all factoring companies are equal. When comparing options, look for:

Transparency on fees: Avoid companies that charge multiple hidden fees on top of the stated rate.
No lock-in contracts: Flexible, on-demand funding is better for most businesses.
Speed of funding: Same-day or next-day funding makes a real difference.
Integration with your accounting software: Seamless connection with Xero, MYOB, or QuickBooks saves time.
How they handle your customers: Will they contact your customers directly? How professional is that process?

Is FundTap a Factoring Company?

FundTap is an invoice finance provider — similar to a factoring company, but with a key difference: you stay in control of your customer relationships. FundTap advances funds against your invoices, and repayment is automatically collected when your customers pay you. No debt collectors. No awkward calls to your clients.

See how FundTap works →

Is Invoice Factoring Right for My Business?

Invoice factoring can be an excellent financial solution for many businesses, but it’s important to determine if it’s the right fit for your specific situation. Here, we break down the key factors to help you decide.

How do factoring companies make money?

Factoring companies make money by charging a fee — typically a percentage of the invoice value — for the service. This fee is called the factoring rate or discount rate and usually ranges from 1% to 5% of the invoice value. Some companies also charge additional fees for setup, monthly minimums, or credit checks.

What is the difference between a factoring company and a bank?

Factoring company: Provides funding based on the value of your invoices (your customers' creditworthiness), not your own credit history. Faster to set up, no collateral required beyond the invoices.
Bank: Provides loans or overdrafts based on your business credit history. Slower to approve, may require collateral. Better for large, long-term capital needs.

Are factoring companies regulated in Australia and New Zealand?

Invoice factoring and invoice finance providers in Australia operate under the Australian Securities and Investments Commission (ASIC) and relevant consumer credit legislation. In New Zealand, they fall under the Financial Markets Authority (FMA) framework. FundTap is a compliant invoice finance provider operating in both markets.

Frequently Asked Questions

What is a factoring company?

A factoring company is a business that purchases unpaid invoices from other businesses at a discount in exchange for immediate cash. The factoring company then collects payment from the original customers when the invoice falls due.

How do factoring companies make money?

Factoring companies charge a fee — typically 1% to 5% of the invoice value — for advancing funds against your invoices. This fee compensates them for the risk of collecting from your customers and for providing early liquidity.

What should I look for when choosing a factoring company?

Look for transparent fees with no hidden charges, no long-term lock-in contracts, fast funding (same day or next day), integration with your accounting software, and a professional approach to handling your customer relationships.

Is FundTap a factoring company?

FundTap is an invoice finance provider. It works similarly to a factoring company — advancing cash against unpaid invoices — but with a key difference: you retain control of your customer relationships. Repayment is automated when your customers pay you, so FundTap never contacts your clients directly.

Do factoring companies check my customers' credit?

Yes. Most factoring companies assess your customers' creditworthiness before agreeing to purchase invoices, as the risk of non-payment sits with them. FundTap also reviews invoice eligibility as part of the funding process.

How quickly does a factoring company pay?

Traditional factoring companies typically fund within 24–48 hours. FundTap can fund approved invoices the same day through your accounting software.

Can small businesses use a factoring company?

Yes. Factoring companies and invoice finance providers like FundTap are particularly well suited to small and medium businesses that issue invoices with 30–90 day payment terms and need faster access to cash.

How Fundtap’s Invoice Factoring works

Connect Your Accounting Software

Select Your Invoice(s)

Receive Cash Within Hours

Repayment Is Automated

View Demo

How does Fundtap compare?

		Online Invoice Factoring	Traditional Factoring
Easy to establish
Online and mobile
Link to Accounting System
Application approval	1 hour	48 hours +	2 weeks +
Quick funding	Minutes	Days	Days
No Establishment fees
No Admin or System fees
Use only when needed, without penalty

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