Factoring is a type of complete financial package which agrees to pay its client an amount equivalent to the value of invoice (net of charges for commission and fees) which gives the client benefits of improved liquidity position and credit protection along with receivables bookkeeping and collection services. A factoring house (factor) can be a bank or a specialized financial firm specializing in receivables management providing finance through the purchase of invoices or accounts receivable. The client sells its account receivables to the factor to meet short term financial needs. The factor is always more concerned with the creditworthiness of the invoiced party rather than the company from which it has purchased the receivables.
Factoring can be a viable alternative to long-term bank financing, expensive short-term bridge loans or other types of borrowing that create debt on the balance sheet. Factoring is a service that covers the financing and collection of account receivables in domestic and international trade.
One liner for a factoring agent can be “U provide invoice we provide finance”
Types of Factoring: