You’ve heard about invoice factoring as a solution for your cash flow challenges. Maybe you’re a growing distributor struggling with the timing gap between paying suppliers and collecting from customers. Perhaps you’re an oilfield services company with strong contracts but waiting 60-90+ days till customer payment. Or you could be a staffing company that needs to meet weekly payroll while waiting 30-60 days for client payments.
Whatever your situation, you’ve probably started exploring working capital solutions and are wondering: “What happens when you factor an invoice?”
This is the number one question business owners ask, and it’s completely understandable. You want to know what you’re signing up for when you factor an invoice, how the process works, and what to expect from start to finish.
The good news? Invoice factoring is straightforward and designed to support your cash flow quickly. Once your business qualifies and submits an invoice for factoring, what happens next is simple, fast, and built to support your growth — not slow you down. At Capitally, we can often establish a factoring facility in under a week, ensuring you can capitalize on opportunities without delay.
Step-by-Step: What Happens When You Factor an Invoice
Let’s walk through the entire process so you know exactly what to expect at each stage.
Step 1: You Submit an Eligible Invoice
The process begins when you submit an invoice from a creditworthy customer for factoring, along with backup documentation such as customer purchase order. This isn’t just any invoice — it needs to meet certain criteria. The invoice should be from a mid-to-large sized customer with strong creditworthiness, typically for $1,500 or more, and the terms need to be clearly documented and verified.
During this step, Capitally reviews the invoice details, confirms your customer’s creditworthiness, and ensures all documentation is in order. Capitally will use an already established credit limit for the customer, or work with their insurer to consider an increase to the existing credit limit and to ensure your receivables are insured. In reviewing the invoice documentation, they may notice errors that require correction, advising you of needed adjustments and thereby speeding up customer approval and payment. They may also perform a quality assurance verification on the goods or services provided, alerting you as required to deficiencies or particularly good work your team has done. This verification process is crucial because it protects both you and Capitally throughout the transaction, and enhances your business’s accuracy and quality control.
Step 2: Capitally Purchases the Invoice
Once your invoice is approved for purchase, Capitally buys it from you. You’re selling the invoice rather than borrowing against it — an important distinction we’ll explain later.
Typically, Capitally advances 75% or more of the invoice value including taxes immediately, regardless of your equity position or financial ratios. A small processing fee is also charged at this time. The advanced funds are deposited directly into your business bank account, typically within one business day from time of submission. This quick turnaround is what makes invoice factoring so valuable for businesses that need immediate cash flow relief.
Step 3: Capitally Manages the Payment Process
Here’s where many business owners worry unnecessarily. Capitally looks after the collection process for you, but this doesn’t mean aggressive tactics or damaged customer relationships. After all, Capitally is working with you to grow your business, not shrink it.
Your customer is notified in a friendly, professional manner that the invoice has been assigned to Capitally for payment. This is communicated in an initial letter to the customer’s accounts payable department, and is also noted on your invoices. The communication is courteous and maintains the professional tone you’d expect in any business transaction. Capitally provides complete transparency with comprehensive reporting available to you, giving you access to invoice and cheque images, supporting documents, collection notes from late payment follow-up, and payment details throughout the process. Identified issues blocking customer payment will be relayed to you for action as required. You continue to manage the strategic relationship with your customer, Capitally takes care of collections administration for you.
Step 4: Your Customer Pays the Invoice
Your customer continues to pay according to the original invoice terms — typically net 30, net 60, or net 90, depending on what was agreed upon. The only difference is that payment goes directly to Capitally instead of to you.
This step happens just as it would in any normal business transaction. Your customer isn’t burdened with complicated new processes or aggressive collection calls. They simply pay their invoice as usual, just to a different recipient.
Step 5: You Receive the Final Reserve
Once Capitally receives payment from your customer, they send you the available balance of the reserved amount that was not previously advanced to you, minus their remaining factoring fees. This completes the transaction.
The beauty of this final step is what it represents: you’ve been paid in full for work you’ve already completed, with no debt remaining on your books. You simply got paid faster than you would have through normal invoicing.
What Doesn’t Happen (Common Misconceptions)
Many business owners hesitate to try invoice factoring because of misconceptions about the process. Let’s clear up the most common concerns:
Customers aren’t aggressively contacted or “harassed.” Professional factoring companies like Capitally understand that your customer relationships are valuable. Communication is always professional, courteous, and respectful. There are no high-pressure tactics or aggressive collection calls. Contact is made when invoice payment is late, not when it’s just been sent.
You don’t lose control of your client relationships. While Capitally handles the payment collection, they do so in a way that preserves and protects your customer relationships. Many clients never even realize there’s been a change in the payment process.
Factoring isn’t a loan. This is perhaps the biggest misconception. Invoice factoring isn’t borrowing money — it’s selling an asset (your invoice) for immediate cash. There’s no debt created, no interest charges, and no repayment schedule. You’re simply converting future payments into immediate working capital. If for some reason a customer doesn’t pay an invoice, a future invoice or credit insurance takes care of the situation (depending on the specific circumstances).
Why This Process Works for B2B Companies
The step-by-step process we’ve outlined above addresses the core challenges that B2B companies face with traditional payment cycles.
Invoice factoring provides predictable cash flow that you can count on for essential business expenses like weekly payroll for staffing companies, equipment and fuel costs for oilfield services, or inventory purchases for growing distributors. Instead of waiting 30, 60, or 90+ days for customer payments, you get the majority of your money within one business day.
This process is particularly helpful for fast-growing companies experiencing working capital constraints, or businesses facing specific recoverable setbacks like partner payouts or temporary disruptions. When your business operates in the gap between paying suppliers quickly and collecting from customers slowly, factoring bridges that timing difference immediately.
The process is also especially valuable when traditional bank financing timelines don’t align with your immediate business needs, or when your situation falls outside standard lending criteria. Many business bankers actually refer clients to invoice factoring when it’s a better fit for the client’s specific circumstances. While traditional loans evaluate the borrowing business comprehensively, factoring focuses specifically on the strength of your receivables and customer creditworthiness — if you have reliable customers with corporate or government contracts, factoring can provide immediate working capital while you continue building the financial foundation for future traditional financing.
Ready to See How This Works for Your Business?
Invoice factoring transforms the uncertainty of “when will I get paid?” into the certainty of “I’ll have these funds tomorrow.” The process is transparent, straightforward, and designed to support your business growth without creating additional financial obligations.
The five steps we’ve outlined — from submitting your invoice to receiving your final payment — create a clear, predictable path from completed work to cash in hand. No surprises, no hidden complexities, just fast access to the money you’ve already earned. Curious how invoice factoring would work for your specific business situation? Let’s walk through it together — no pressure, just clarity. Contact Capitally today to discuss your cash flow needs and see if invoice factoring is the right solution for your business.
