A factoring company is a financial institution that purchases accounts receivable from businesses at a discount. This service, known as invoice factoring, provides companies with immediate cash flow by advancing a percentage of unpaid invoices.

How Factoring Works:

1. Business sells goods or services on credit
2. Factoring company purchases the resulting invoices
3. Business receives an advance (typically 70-90% of invoice value)
4. Factoring company collects payment from customers
5. Remaining balance, minus fees, is paid to the business

Benefits of Using a Factoring Company:

• Improved cash flow
• Reduced administrative burden
• No new debt on balance sheet
• Potential for growth without traditional financing

Types of Factoring:

• Recourse factoring
• Non-recourse factoring
• Spot factoring
• Contract factoring

Industries Commonly Using Factoring:

• Manufacturing
• Trucking and logistics
• Staffing agencies
• Wholesale and distribution

When considering a factoring company, businesses should carefully evaluate the costs, terms, and potential impact on customer relationships.