How to Switch Invoice Factoring Companies Without a Cash Gap

Switching Invoice Factoring Companies: Releases, Customer Notices and Timing

Businesses switch factors for higher fees than expected, slow funding, poor service, or because they have outgrown the program. A switch is routine when it's done in the right order.

Step 1: Read Your Current Agreement

Term end date and automatic renewal language
Required notice period and how notice must be sent
Early termination fees
Whether the agreement covers all receivables or specific customers

Step 2: Line Up the New Factor First

Complete the new review before giving notice. The new factor will look at your aging report, customer list, invoices, and the current agreement.

Step 3: Buyout of Open Invoices

Usually the new factor pays off your current factor for invoices it has already funded, using a payoff letter. That avoids waiting for every open invoice to be paid before you can move.

Step 4: UCC Release

Your current factor likely filed a UCC lien on your receivables. The new factor will require that lien to be released or amended at closing.

Step 5: New Payment Instructions

Customers receive updated instructions telling them where to pay. Payments sent to the old factor after the switch should be forwarded under the payoff terms. Confirm that in writing.

Avoiding a Cash Gap

Time the switch around your billing cycle
Keep invoicing normally during the transition
Get the payoff amount and release terms in writing before closing

Before signing a new agreement, review how to read a factoring agreement. If you have outgrown factoring, compare AR loans and lines of credit.

Typical Starting Point

Factoring programs we work with require $150,000+ in annual business revenue, with invoices to commercial or government customers. Up to $30 million per month is available, subject to underwriting and eligible invoices. There is no FICO minimum, because the review centers on your customers' ability to pay. A review usually starts with four items: an accounts receivable aging report, a customer list, recent invoices, and a basic company profile. Once set up, funding on approved invoices often arrives in about two business days.

General information, not a quote or offer. Advance rates, fees, and terms are set by each capital provider and depend on your customers, invoices, and business. Every arrangement is subject to underwriting and approval.

Switching Invoice Factoring Companies: Releases, Customer Notices and Timing