B2B factoring is a form of invoice factoring where a business sells its accounts receivable to a third-party factoring company.
B2B factoring can be viewed as a four-step process:
- A business sells unpaid customer invoices to a factoring company
- The factoring company provides a cash advance to the business, typically 80-90% of the invoice value
- The customer submits invoice payment to the factor
- The factor sends the remaining value of the invoice to the business, minus a small factoring fee
Small businesses in particular tend to take advantage of the benefits that B2B factoring offers, including a constant short-term boost in working capital.