Distributor factoring (also called wholesale factoring) lets a wholesaler or distributor sell its unpaid customer invoices to a factoring company for an advance, often within a day or two, instead of waiting for retailers and other business customers to pay on net terms. The factor collects from your customers and pays you the balance, minus its fee. It is one of the options in our wholesale financing hub.
Distributors often pay suppliers on short terms while giving customers 30 days or more. With thin margins, a few large orders can drain cash even when the business is profitable. Factoring turns those receivables into cash you can use to restock.
How distributor factoring works
- You deliver and invoice. Proof of delivery matters more in distribution than in most industries, because the factor needs to know the customer received the goods.
- You submit invoices to the factor. The factor checks each customer’s credit and verifies the invoice.
- The factor advances part of the invoice. The rest is held as a reserve.
- Your customer pays the factor. Payment goes to an account the factor controls.
- The factor releases the reserve, less its fee.
Timing depends on your customer confirming receipt. altLINE says advances typically arrive “between 24 and 48 hours after submission,” though timing “generally depends on your customer’s receipt and acknowledgment of goods” (altLINE). For a primer on the product itself, see what invoice factoring is.
What distributor factoring costs
Factors charge a factoring fee (or discount rate): a percentage of the invoice’s face value for a set period, with more added the longer the invoice stays unpaid. It is not an APR, which states the cost of credit per year. A 1% fee for 30 days works out to about 12% a year, so turn every offer into the same terms before you compare. Figures checked on September 21, 2026, from each company’s own distribution page; they are published ranges, not quotes.
| Factor | Advance rate as published | Fee as published | Funding speed | Other terms stated |
|---|---|---|---|---|
| altLINE (a division of The Southern Bank Company) | “80-90% of your invoice’s value” | Initial fee of 0.90%–3.50% for the first 30 days; incremental fees of 0.25%–1.50% after that | 24–48 hours after submission | Recourse only; files a UCC after a term sheet is signed |
| Porter Capital | “up to 95% of your invoice” | “Rates as low as 0.4%” (period not stated) | “Funding in as little as 24 hours” | Example facilities from $250K to $4.5M; non-recourse listed as a service |
| 1st Commercial Credit | Available on request | “factoring rates from 0.69% to 1.59%”; depends partly on “how long the receivable remains unpaid” | Initial setup in 3 to 5 working days; then advances “within 24 hours or less” | Credit lines of $10,000 to $10 million; “No financials needed” under $350,000 |
| FundThrough | “100% of the invoice amount, less a fee” | Rates “vary depending on the length of the net terms” | “in a matter of days” | No minimums; one creditworthy business or government customer needed |
Sources: altLINE, Porter Capital, 1st Commercial Credit, FundThrough.
Some of these pages give a starting rate without saying what period it covers, or leave the fee to a quote. Ask every factor for a written example on one of your real invoices, showing the advance, all fees, and the total cost if the customer pays at 30, 60 and 90 days. Also ask about minimum monthly volume, termination fees and whether you must factor every customer. For a deeper look at pricing models, see invoice factoring rates.
Who qualifies and what factors look at
The factor is buying your customers’ promises to pay, so their credit carries the most weight. altLINE says invoices with 30–90 day turnover are “well-positioned for factoring,” and it prefers “large or medium-sized companies” as customers. Porter Capital says applicants “are often approved regardless of credit score.” FundThrough asks for invoices to at least one creditworthy business or government customer, for completed work, with no liens on receivables that cannot be removed.
1st Commercial Credit lists the documents it asks distributors for:
- Factoring application
- Aging report of your accounts receivable
- Copies of invoices and proof of delivery
- Customer credit information
- Business formation documents and a voided business check for ACH setup
Our list of invoice factoring application documents covers what to prepare in more detail.
Issues specific to distributors
- Deductions and chargebacks. Retail and chain customers often short-pay invoices for damages, shortages, promotions or compliance penalties. Factors track this as dilution, and high dilution can lower your advance rate or reserve more cash. Clean shipping and receiving records keep it down.
- Returns. Returned goods reduce what the factor can collect. Agree how returns are credited before you sign.
- Customer concentration. If one national account is most of your sales, the factor may cap funding against it.
- Funding the purchase, not just the sale. Factoring only helps after you invoice. If you need cash to buy the goods in the first place, look at purchase order financing or wholesale inventory financing, and see combining PO financing and invoice factoring.
Factoring vs. other options for distributors
| Option | Suits | Main trade-off |
|---|---|---|
| Recourse factoring | Distributors with creditworthy customers who want lower pricing | You buy back invoices customers do not pay |
| Non-recourse factoring | Distributors worried about a customer’s insolvency | Usually costs more; disputes are not covered |
| Spot factoring | Occasional cash needs on single invoices | Priced invoice by invoice; ask how it compares with an ongoing facility |
| Asset-based line of credit | Larger distributors with receivables and inventory | Reporting, field exams and larger minimums |
| Bank line of credit | Established, profitable distributors | Stricter credit and financial requirements |
For the difference between the first two, see recourse vs. non-recourse factoring, and for single-invoice deals, spot factoring explained. Manufacturers that sell through distributors face similar trade-offs, covered in manufacturing factoring.
Pitfalls to plan for
- Pricing only at 30 days. If big customers pay at 60 or 75 days, price the deal at that length.
- Missing the UCC filing. Factors file a UCC lien on receivables; altLINE says it files one “upon executing a term sheet.” That can block other financing. See what a UCC filing is.
- Surprising your customers. Most factoring redirects payment to the factor. Tell key accounts before the first remittance change; see customer notification in factoring.
- Locking into volume you won’t use. Monthly minimums and long terms cost money in slow seasons. Match the contract to your real sales pattern.
FAQ
Is wholesale factoring a loan?
Standard factoring is a sale of invoices, not a loan; 1st Commercial Credit describes it as a way to “Bring In Money Without Taking On New Debt.” Some providers also offer receivables-backed lines of credit, which are loans, so check what you are signing.
How much of each invoice do distributors get upfront?
The factors above publish advance rates from 80% to 100% of the invoice, less fees. Your rate depends on your customers’ credit and your dilution from returns and deductions.
Can a distributor with low credit use factoring?
Often, yes. Factors focus on your customers. 1st Commercial Credit says “Low Credit Score Accepted,” and Porter Capital makes a similar point on its distribution page.
Can I factor invoices to customers outside the U.S.?
Some factors fund export receivables. Our import and export financing guide covers export factoring and credit insurance.
Next step
Pull your receivables aging and a list of deductions and returns from the last few months; those are the first things a factor will ask for. Our wholesale financing page explains how we compare factoring and credit offers from the lending partners we work with.
Sources
- altLINE: Wholesale and distribution factoring
- Porter Capital: Distribution company factoring
- 1st Commercial Credit: Distributor factoring
- FundThrough: Wholesale invoice factoring
About this page. Written by Ezra Cabrera, Content Team Lead at SMB Compass. Figures were checked against the primary sources listed above on September 21, 2026; lenders change their terms, so confirm current terms before you apply, and let us know if you spot a figure that has changed. SMB Compass is a business financing broker: we don’t lend our own money, and we are paid by the lenders we place loans with. This page is general information, not financial, legal or tax advice.