Invoice Factoring
A means of raising cash by selling customer invoices.
Invoice factoring gives you a means of funding cash flow by selling your customer invoices to a third party, such as a factor or factoring company. In exchange for selling your invoices at a discount, you are given a large proportion of their value.
What else does the factoring company do?
The factor deducts a fee - typically around 2% of the overall value of the invoice - and you are then paid the rest of the money by the factoring company once the invoice has been fully paid by the customer. The factor will be responsible for chasing up invoices on your behalf.Practical Application Example
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Invoice factoring typically works by providing your company’s usual services or goods to the customer, before sending them an invoice made payable to the factoring company, which also receives a copy. The factoring company then gives you as much as 85% of the invoice amount, in addition to charging a service fee. This is followed by the customer paying the invoice amount in full to the factoring company, which then gives the remaining balance to you once the invoice has been cleared. ”
