Glossary · Invoice finance
Invoice factoring
Also called Factoring, Debt factoring
Invoice factoring is selling unpaid invoices to a factor, which pays most of their value up front and collects payment from your customers.
In factoring, a finance company (the factor) buys your receivables. It advances a large share of each invoice’s value — commonly 70 to 90% — when you submit it, and pays the remainder, less its fees, when the customer pays.
The factor usually takes over collection, so customers are told to pay the factor directly. That makes factoring visible to customers, and puts their experience of being chased in someone else’s hands.
Costs come as a discount or service fee, often charged on how long invoices stay unpaid, plus sometimes an arrangement fee. Factoring can be with or without recourse, which decides who bears the loss if a customer never pays.
Example
A supplier factors a €20,000 invoice. The factor advances €17,000 the same week. The customer pays the factor €20,000 on day 45, and the supplier receives the remaining €3,000 less €600 of fees.