What is accounts receivable factoring and should I use it for my business?
Accounts receivable factoring: what it costs, when it makes sense, and when it doesn't
Published May 8, 2026
Short answer
AR factoring means selling your unpaid invoices to a financing company at a discount, typically getting 70 to 90 cents upfront and the remainder minus fees when the customer pays. It solves a cash flow gap immediately, but it costs 2 to 8 percent of invoice face value regardless of how at-risk the invoice was. For most service businesses with DSO under 60 days, a first-party follow-up call captures more and gives up less margin. Factoring makes the most sense when payment cycles are structurally long (government contracts, large hospital systems) and when every day of float costs you more than the factor's fee.
Factoring charges every invoice. We charge on recovery.
A factor takes 2 to 5 percent of face value whether the invoice was at risk or not. Syntharra calls on day 3 past due. 10% only on what is collected.
Connect your booksFactoring is a sale, not a loan
Factoring is a transfer of ownership, not borrowing. You sell the right to collect your invoice to a third-party factor, who advances you 70 to 90 percent immediately and sends the remainder (minus their fee) once the customer pays. The fee, called the factoring rate or discount rate, typically runs 1 to 5 percent of the invoice face value per 30 days outstanding.
On a net-60 invoice that example, you might pay 2 to 10 percent of the total balance just in finance charges over the life of the invoice. That fee applies to every invoice you factor, including the ones that would have been paid on time without any intervention. The structural risk of factoring is paying a recovery fee on invoices that did not need recovering.
Recourse vs non-recourse: who carries the credit risk
Two main structures exist. With recourse factoring, you have to buy the invoice back if the customer does not pay, so you carry the credit risk. Non-recourse factoring shifts the credit risk to the factor, which is why the rates are higher. Non-recourse is closer to insurance than financing in how the math works out.
Most small business factoring arrangements are recourse, even when the paperwork does not say so clearly. Look for buyback clauses, advance reductions on aged invoices, and personal guarantees from the business owner. If any of those are present, the contract is functionally recourse no matter what the title page says.
The hidden cost: the customer experience
There is a less-discussed cost beyond the discount rate: the customer relationship. The factor is now the one calling your customer about money. Some factors are professional about this; others are not. If the customer's experience with the factor is bad, that reflects on your business. You sold the invoice, not your reputation.
B2B service businesses with long-term clients should weigh this carefully before using factoring on recurring customers. A one-off bad call from a factor can lose a repeat-contract relationship that was worth tens of thousands of dollars over its lifetime. Confidential factoring exists but costs more and is not always available.
When factoring makes sense, and when a call does instead
Factoring fits specific situations. When your payment cycle is structurally long and you cannot change it (government agencies, large health systems, construction retainage), when the cash is needed to fund work-in-progress or payroll today, and when the float cost exceeds the factor fee, factoring is a reasonable trade. It is less sensible for invoices that just need a phone call. A significant portion of unpaid B2B invoices are late because no one has asked for the money yet, not because the customer cannot pay.
Syntharra targets that subset directly. A first-party phone call at day 3 past due, made on your behalf, with a 10 percent success fee on what is recovered and no monthly cost. You give up nothing if the call fails, and give up 10 percent only on what is collected. A factor charges 2 to 5 percent of every invoice you factor, whether it was at risk or not. The right answer depends on whether your AR problem is structural (long pay cycles) or operational (calls not being made).