Factoring
What is Factoring?
Commercial factoring is used by businesses to quickly convert their outstanding invoices (accounts receivable) into immediate cash. It's not a loan, but rather the sale of your invoices to a third-party company, known as a factor, at a discount.
How Factoring is Used
For many businesses, waiting 30, 60, or even 90 days for customer payments can create a significant strain on cash flow. Many businesses need consistent capital to manage inventory and payroll, factoring provides an immediate solution.
Here’s how it works:
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Your business provides goods or services to a customer and sends them an invoice.
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You sell that unpaid invoice to a factoring company.
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The factor immediately advances you a large percentage of the invoice's value, typically 70-90%.
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The factor then collects the full payment from your customer.
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Once the invoice is paid, the factor gives you the remaining balance, minus their fee.
The Bridge
This process is used to bridge the gap between invoicing and receiving payment, providing the immediate working capital needed to run the business smoothly. It is especially common in industries like trucking, manufacturing, staffing, and apparel, where long payment cycles are standard.