Chances are if you’re a business owner and you’ve found this article, you’re considering various financing options available to you. Alternative financing options are becoming more prevalent with the expansion on online lenders, so you may be asking “What is a factoring company?”
A factoring company is a financing partner who helps businesses in need of faster cash flow. These businesses typically face timing challenges of slow-paying customers or need funds to ramp up growth. Factoring companies come in many varieties – independent financiers, financial institutions and multinational corporations to name a few.
Each factoring company has its own way of doing things, but they all share the common function of purchasing a business’s accounts receivable (AR). A business’s AR represents goods or services already produced and delivered to the buyer. The business has invoiced their customer which is why this type of financing is known as invoice factoring.
How Factoring Works
A factoring company works with a business, as well as with the business’s customers (account debtors), to accelerate the movement of cash flow through the business. A detailed look at how factoring works shows the involvement of each party.