What Is Invoice Factoring?

When a business needs cash but doesn't want to borrow money they can turn to Invoice Factoring. Rather than a bank loan, outstanding invoices are sold to a factoring company.

When your business delivers goods or services to a customer on terms an invoice is created. The average customer may wait 20, 30, or even more days, before paying the invoice.

Rather than wait for payment, your business can receive an immediate advance on the face amount of the invoice from a factoring company.

The factor issues the advance and keeps back a portion in reserve. When the invoice is paid the reserve is released,  less the factoring fee. There is no interest or loan fee charged as the process involves the assignment of an invoice rather than the creation of debt.

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