Companies facing a cash-flow squeeze and slow-paying customers often sell their invoices or accounts receivable to specialized companies such as A/R Funding. The factor advances most of the invoice amount — usually 80% to 90% — after checking out the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction (or factoring) fee.
Companies that use factoring like it because they get money quickly, rather than waiting the usual 30 or 60 days for payment. After sending an invoice to a factoring firm, a business can have money in its hands within 24 hours. Read more