Invoice factoring
Selling your unpaid invoices to a finance company at a discount for immediate cash; they collect payment.
What it means
Invoice factoring is a form of debtor finance where a business sells its unpaid invoices to a finance company (the factor) at a discount, in exchange for immediate cash. The factor then collects payment directly from your customers when the invoices fall due.
Factoring can ease cash flow when receivables are tied up, but it reduces the net amount you ultimately receive for each invoice and means customers deal with the factor.
Things to weigh up
Consider the fees, whether the arrangement is disclosed to customers, and whether you remain liable if a customer does not pay. Factoring is one option among several for releasing cash. Before committing, compare the cost against faster in-house collection using our free calculators, and see invoice finance for the broader category.
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