invoice factoring definition

What is Invoice Factoring?

Invoice Factoring Overview

Invoice factoring is a financing arrangement that gives a business fast access to cash. Many small businesses in need of working capital utilize factoring as a reliable alternative to a traditional line of credit. When cash flow strains a business, invoice factoring unlocks the value tied up in the business’s accounts receivable. Also, the term factoring is often used interchangeably with accounts receivable financing. For a more detailed look at How Factoring Works, Is Factoring the Right Fit, and the Costs of Factoring  see the bank’s invoice factoring section of the site.

How Does Invoice Factoring Work?

An invoice factoring arrangement involves three parties: The Business (the seller of invoices), The Business’s Customer (the debtor) and the Factor (factoring company).

A business sells its invoices to a third party financing partner (factor). Rather than waiting 30, 60 or 90 days for a customer to pay, funds are available to the business within 24 hours.

 

Invoice Factoring in Five Steps

 

Factoring improves cash flow management for new and growing businesses. In addition to providing working capital, it also supports the business with credit verification and payment collections functions.


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  1. […] ability to get out from under a cash crunch by accelerating the business’s cash flow. See this How Factoring Works diagram for more […]

  2. […] this post for more detail on the factoring […]

  3. […] a previous post, we define invoice factoring as a type of commercial finance that converts outstanding invoices into immediate cash. Factoring […]

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