Accounts Receivable Factoring

Accounts receivable factoring is a type of debtor finance where SMEs sell their invoices to a third party at a discount, in order to provide an immediate cash injection. Accounts receivable factoring provides businesses with an option to finance their venture without taking out a loan. Accounts receivable factoring is a way of financing your business by selling unpaid invoices for cash advances. A factoring company pays you a large percentage of the outstanding invoice amount, follows up with your customer for payment, then pays you the remainder of what you’re owed, minus fees.

Accounts receivable factoring is a way of financing your business by selling unpaid invoices for cash advances. A factoring company pays you a large percentage of the outstanding invoice amount, follows up with your customer for payment, then pays you the remainder of what you’re owed, minus fees.

Factoring companies usually charge variable rates. The longer your customers take to pay the invoice, the more you’ll owe.

First, factoring companies typically pay most of the value of the invoice in advance. Advance amounts vary depending on the industry, but can be as much or more than 90%. Next, your customer pays the factoring company the full value of the invoice. Finally, the factoring company pays you whatever remains between the amount you were advanced and the full invoice amount minus fees.