Factoring is a well practiced form of business finance in which invoices are sold to a finance company “the factor” and paid immediately at a small discount. This is used with businesses that are operating on a cash basis with their customers to offer terms of payment of 30, 45, and 60 days for goods delivered or services performed. When terms of payment are offered, customers buy more. Factoring is a form of commercial finance that terms allows customers of a business to buy more on credit. This lets a business sell their accounts receivable and immediately access their money immediately.
- Because factoring involves purchasing accounts, factors focus on the credit worthiness of account debtors (Customers) and not the credit worthiness of the business being assisted.
- In most cases, the underwriting of a factoring arrangement is completed in hours versus the weeks for a traditional loan.
- Factors provide the best solution to rapidly growing entrepreneurs that are in need of working capital.
Factoring is never a loan, but the actual purchase of accounts receivable. It is a business finance solution for business to business transactions only.