Factoring Line of Credit

Similar to a business line of credit, a factoring line of credit is an alternative financing facility that allows businesses to to receive funds as needed with minimal fees.

When a business chooses to use a factoring line of credit, it sells its accounts receivables to a third-party company (known as a factor) in exchange for cash. Like a traditional line of credit, factoring lines have a credit limit; however, businesses can often request credit line increases once they have worked with a factor for a certain amount of time.

This is a useful financing method for small businesses that have customers with long payment terms, can’t obtain a traditional bank loan, or need immediate cash. This is because factoring is a quick process (a company can receive same-day funding) and has an easier qualification process than bank loans.

Related terms "F"