Factoring is not a single product. The word covers a family of arrangements that differ on two practical questions: how much of your invoicing you commit, and who absorbs the loss if a customer never pays. The pages below take each structure in turn.
A useful way to read them is as dimensions rather than categories. A whole-ledger agreement can be non-recourse. A single invoice can be sold on recourse terms. Most providers offer a limited selection, and what they offer in your province may be narrower than what exists in general.
The arrangement pages
- Recourse and non-recourse factoring: The difference is who carries the loss if a customer never pays. Recourse puts the unpaid invoice back with you. Non-recourse shifts more of that risk to the provider, within conditions it sets.
- Spot factoring: One invoice, or a handful, sold when you need the cash. No commitment to your whole ledger and no long contract, in exchange for less predictable terms.
- Full turnover factoring: An arrangement covering all or most of your sales for a term. Sometimes called contract factoring or whole-ledger factoring, depending on the provider.
- Freight factoring: Built around the way carriers and brokers get paid: proof of delivery, rate confirmations and brokers who settle on their own cycle.
- Invoice factoring compared with a bank loan: A sale of an asset and a loan are different instruments. The comparison covers what is reviewed, the balance sheet, collections and flexibility.
Whole ledger or selective
A whole-ledger arrangement covers all or most of your invoicing for a defined term. It is the structure most providers prefer, because the mix of customers spreads their risk, and because the volume makes the administration worthwhile. The trade is commitment: you agree to route your sales through one provider for the length of the contract.
A selective arrangement, usually called spot factoring, lets you sell a single invoice or a group of them when cash is tight. You keep the rest of your ledger to yourself. The trade runs the other way: less commitment, but less predictability, and a provider may price each invoice on its own.
Who carries the credit risk
Recourse and non-recourse are the two answers to the question of unpaid invoices. With recourse, an invoice your customer never pays can come back to you. With non-recourse, the provider accepts more of that risk, but almost always with conditions attached: notice periods, exclusions for disputes, and requirements about how the customer was checked.
The phrase non-recourse suggests a clean transfer of risk. In practice it is a narrower promise than it sounds, and the exclusions are worth reading closely before you assume a bad debt becomes someone else's problem.
Industry shaped arrangements
Some structures exist because a trade works in a particular way. Freight factoring is the clearest example. A carrier delivers a load, produces a signed bill of lading, and waits for a broker or shipper to settle on its own cycle. The documentation is standard, the invoice is small relative to the work, and both sides expect a third party to be involved in payment. That makes the arrangement routine in a way it rarely is in, say, professional services.
If your trade has a matching industry guide, read that alongside the structure pages. The invoicing habits of your sector decide which arrangement will actually work.
Factoring and borrowing compared
The last page in this section compares factoring with a bank loan or line of credit. The short version is that they answer different questions. A loan is priced against your business as a whole and repaid on a schedule. Factoring is priced against individual invoices and moves with your sales. Neither is automatically better, and many businesses use both.
Before you approach a provider
Whichever structure you are considering, the same groundwork helps. Know your average invoice size, your usual payment terms, how concentrated your ledger is with one or two customers, and how often invoices are disputed or short paid. That information shapes what a provider can offer far more than the length of a sales conversation.
It also helps to know which questions matter to you. The seven on the home page cover recourse, notification, minimums, contract length, termination, fee method and reserve release. If a provider struggles with any of them, that is information too.