Fatoring

Fatoring is a financial transaction and a type of debt financing or account receivable mediation. It involves a company selling its accounts receivable to a third party, called a factor, at a discount. The factor then collects the debt from the company's customers. This provides businesses with immediate cash flow, as they don't have to wait for their customers to pay their invoices.

Companies typically use fatoring to manage their working capital, especially when they have long payment terms with their clients. It can be particularly useful for businesses experiencing rapid growth or those facing seasonal fluctuations in revenue. The factor takes on the risk of non-payment from the customer, and in return, receives a fee or commission. The percentage of the invoice value that the factor advances can vary, as can the discount rate.

There are different types of fatoring, including recourse and non-recourse fatoring. In recourse fatoring, the seller remains liable for any uncollectible accounts. In non-recourse fatoring, the factor assumes the credit risk. The cost of fatoring can be higher than traditional bank loans, but it is often more accessible for companies that may not qualify for conventional financing. It is a common practice in various industries, including manufacturing, textiles, and apparel.