Factoring

Factoring is a form of invoice finance where a business sells its outstanding invoices to a financier, who advances a proportion of their value upfront and then collects payment directly from the business's customers, with the balance, less fees, paid to the business once the invoice is collected. Because the financier typically manages collections directly, factoring is usually disclosed to customers, unlike invoice discounting where the arrangement generally stays confidential and the business continues managing its own collections. Businesses choose factoring over invoice discounting where they want the financier's collections capability and credit management taken off their hands, or where their own accounts receivable function is not well resourced. Lenders assess factoring facilities primarily against the quality and diversity of the debtor book, since concentration in one or two large customers, or a history of disputed invoices, materially affects both the facility size and its pricing.

Related

Invoice finance · Invoice discounting · Selective invoice finance