What is Factoring?

Are you looking for the highest degree of flexibility? Invoice factoring gives you the freedom to sell open invoices and receive cash for a set discount fee. Invoice factoring is a financial service used to boost a company’s cash flow. Invoice factoring is not a loan. A company sells its unpaid invoices to the factoring company at a discount. The factoring company provides immediate capital for those invoices. The factoring company now owns the invoices and will collect according to the payment terms of the unpaid invoices from the customer who is being invoiced, typically 30-90 days.

Sample Invoice Factoring Scenario

Let’s take a look at a sample invoice factoring scenario below:

A contractor doing maintenance for municipalities is billing for completed work but won’t collect payment for 30, 60 or 90 days. In the meantime, he needs to pay his employees and purchase materials for his next job. In order to solve his cash flow problem, he chooses to factor his invoices. Once his service is completed, he send his invoice to the factoring company instead of the municipality, his customer. The factor verifies completion of work and advances up to 90% of the invoice within 24 hours. The factor sends the invoice to the customer and will collect payment in 30-90 days. Once the factor is paid, the remaining 10% of the invoice value will be paid to the contractor, minus the factoring fee.