factoringu

Factoringu is a financial service in which a business sells its accounts receivable (invoices) to a specialized financial institution, called a factor, at a discount in exchange for immediate cash. Unlike a loan, factoring involves a sale of receivables rather than borrowing against them. The factor may also provide services such as credit management, collection, and protection against credit losses.

The main parties are the seller (usually a supplier or manufacturer), the factor (the finance company), and the debtor (the buyer shown on the invoices). Factoring can be done with or without recourse. In recourse factoring, the seller remains liable for bad debts; in non-recourse factoring, the factor bears most of the credit risk, though exceptions may apply.

Types of factoring include domestic and international (cross-border) factoring, as well as varying levels of service. Some arrangements include direct collection and credit checks, while others involve only funding and outsourcing of receivables management. Reverse factoring, or supply chain finance, is a related concept where buyers initiate the financing of suppliers’ receivables.

Process basics typically involve the seller assigning invoices to the factor, receiving an advance on a percentage of the invoice value, and the factor then collecting payment from the debtor. After collection, the factor pays the remainder to the seller minus fees, which consist of a discount rate and service charges.

Benefits include improved cash flow and working capital, accelerated receipt of funds, and potential credit risk protection. Costs and potential impacts on supplier–customer relationships should be weighed, as factoring is generally more expensive than traditional financing and may influence customer communications.