Invoice Factoring for Restaurants: When It Applies (and When It Does Not)

Invoice factoring is a financing option you will see mentioned in business funding guides. The basic idea sounds appealing: sell your unpaid invoices to get cash immediately instead of waiting 30-60 days for customers to pay.

For most restaurants, invoice factoring is irrelevant. The reason is simple: typical restaurant transactions do not involve invoices. Customers pay when they eat, not 30 days later.

How Invoice Factoring Works

In traditional invoice factoring:

• You invoice a customer — Typically a business, with net-30 or net-60 payment terms
• You sell that invoice to a factor — They give you 80-90% of the invoice value immediately
• The customer pays the factor — When the invoice comes due
• You get the remainder — Minus the factoring fee (typically 1-5% of invoice value)

This makes sense for businesses that wait weeks or months for payment: manufacturers, contractors, staffing agencies, wholesalers. It does not make sense when customers pay at the point of sale.

Why Factoring Does Not Fit Most Restaurants

Consider how a typical restaurant transaction works:

• Dine-in: Customer eats, gets check, pays before leaving. No invoice.
• Takeout/delivery: Customer pays when ordering or at pickup. No invoice.
• Counter service: Customer pays at register. No invoice.
• Third-party delivery: Uber/DoorDash settles within days. No invoice to factor.

There is no accounts receivable to factor because you are not extending credit to your customers. Invoice factoring requires invoices — specifically, invoices with payment terms to creditworthy businesses.

The Exception: Corporate Catering Operations

Some restaurants do have a factoring-eligible revenue stream: B2B catering with invoiced billing.

If your restaurant operates a catering division that bills corporate clients net-30, those invoices can potentially be factored. This applies to:

• Corporate event catering — Companies booking lunches, meetings, conferences
• Regular contract catering — Ongoing arrangements with offices for daily meal service
• Institutional catering — Schools, hospitals, event venues with billing terms
• Wholesale operations — If you supply other businesses with products on credit

Scenario: When Factoring Works for a Restaurant

The business: A restaurant with a significant catering operation. Main restaurant generates $60,000/month in dine-in and takeout (paid at point of sale). Catering division generates $40,000/month in corporate events billed net-30.

The cash flow problem: A large tech company books $25,000 in catering for a three-day conference. The restaurant needs to buy $8,000 in product and hire extra staff upfront, but the client will not pay for 30 days.

How factoring helps: The restaurant factors the $25,000 invoice immediately after the event. Factor advances 85% ($21,250) within 48 hours. Restaurant has cash to cover costs and take on more jobs. When the client pays in 30 days, factor releases remaining 15% minus 3% fee.

The math: Received $21,250 immediately plus $2,750 later (remaining 15% minus $750 fee). Total cost: $750 for 30-day bridge. Equivalent to roughly 3% for one month, or about 36% annualized — expensive but enabling.

Is Your Catering Business Big Enough to Factor?

Factoring companies have minimums. Consider factoring if:

• You invoice at least $10,000-20,000/month — Many factors have minimums
• Your clients are creditworthy businesses — Factors evaluate your customers, not you
• You have consistent catering volume — One-off events may not justify setup costs
• Cash flow timing genuinely hurts your operations — The cost must be worth it

If your catering is occasional and small, factoring setup costs (due diligence, account setup, minimums) may exceed the benefit.

Factoring Costs Breakdown

For restaurant catering operations, factoring typically costs:

Factoring vs. Other Options for Catering Cash Flow

If you have a catering operation with cash flow gaps, compare options:

Alternative: Require Catering Deposits

Before factoring catering invoices, consider requiring deposits:

• 50% upfront — Standard in catering industry, covers your hard costs
• Full prepayment for new clients — Until they establish credit with you
• Credit card on file — Charge at time of event, no waiting
• Net-7 instead of net-30 — Faster payment reduces cash gap

Many corporate clients will accept reasonable deposit terms, especially for new vendors. You may not need factoring if you simply change your payment policies.

What If Factoring Is Not Right for Me?

For most restaurants (those without significant B2B catering), other financing options fit better:

• Line of credit — Revolving access for working capital gaps
• Equipment financing — For kitchen equipment with equipment as collateral
• Term loan — For specific projects with known costs
• SBA loan — For major expansion or renovation

These options work for any restaurant, regardless of payment structure, because they are not tied to invoices.

Summary: Factoring Fit for Restaurants

Be honest about whether factoring actually fits your business model. A financing option that works for other industries may not apply to restaurants.