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What is factoring? Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate [eg, payroll] cash needs. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. Accounts receivable financing is a term more accurately used to describe a form of asset based lending against accounts receivable.
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Do NOT confuse factoring with MCA. Merchant cash advances are loans an MCA company gives you, that you repay with your cash, credit card, or other sales.

Factoring is the sale of an asset and not as a loan.

One sells their invoices; they are not applying for a loan. Example: some clients use factoring weekly and “sell’ their invoices on Thursdays to meet payroll on Fridays.

The cost of factoring is the Discount Fee.

Factoring is not about interest rates. The cost of factoring is a modest discount on the sale of your invoice that you will give to the factor as their fee.

The factoring process.

Once you present an invoice for sale--and the factor verifies it--the factor wires to your operating account a discounted fee of the invoice value as a down payment on the invoice. When a debtor pays, factors wire into your account the balance of the invoice value--assuming that the invoice was paid in total--less the discount fee earned by the factor.

What types of businesses use factoring? Many kinds of businesses use factoring. Some examples include

  • Trucking Companies
  • Manufacturers
  • Distributors
  • Energy Companies
  • Companies that contract for the government
  • Construction
  • Staffing
  • Services
  • And more...

Advantages of Factoring:

  • Invoice factoring provides an unlimited line of working capital, limited only by the amount of business you can generate, not on the amount of your assets
  • You qualify for cash advances based on your customer's creditworthiness, not yours
  • Invoice factoring does not increase your debt position
  • Invoice factoring can help improve your credit rating & collections
  • New orders can generate cash on average 3 - 7 business days, instead of 30, 60, 90, or more!
  • No time-consuming Bank audits are required - and no restrictions on the use of proceeds

Proceeds from Factoring can be used to:

  • Increase your sales
  • Take supplier discounts
  • Increase your staff or fund payroll
  • Purchase new equipment
  • Increase your inventory
  • Improve your credit rating

Download the 100K Investing app and we will have a factoring company contact you to complete the process.