SlideShare a Scribd company logo
Factoring is a transaction in which a business sells
its accounts receivable, or invoices, to a third party
commercial financial company, also known as a
“factor.” This is done so that the business can
receive cash more quickly than it would by waiting
30 to 60 days for a customer payment. Factoring
is sometimes called “accounts receivable
financing.”
1.You perform a service for your customer.
2.You send your invoice to a factoring
company.
3.You receive a cash advance on your
invoice from the factoring company.
4.The factoring company collects full
payment from your customer.
5.The factoring company pays you the rest
of your invoice amount, minus a fee.
1.Factoring can be customized and managed
so that it provides necessary capital when your
company needs it.
2.The financing does not show up on your
balance sheet as debt.
3.Factoring is based on the quality of your
customers’ credit, not your own credit or
business history.
4.Unlike a conventional loan, factoring has no
limit to the amount of financing.
5.Factoring aligns well with start-up businesses
that need immediate cash flow.
ABC Transport is a trucking company that wants to double the size of its
fleet over the next two years and serve more clients in the West.
The company has just landed a new customer on the West Coast who
needs freight shipped from Kansas City to Los Angeles.
The customer will pay for the service within 30 days, but that won’t cover
the immediate fuel, payroll and maintenance costs of running the route.
The owners of ABC Transport have been in this situation before. They feel
that the lack of available cash flow has prevented the company from taking
on new business.
ABC Transport turns to a factoring company, selling the West Coast
customer’s invoice in exchange for a 90% advance on the total amount
within a day.
The influx of cash replenishes the trucking company’s reserves, allowing it
to run the Kansas City-Los Angeles route.
Factoring also gives ABC Transport the flexibility to take on new customers
as well.

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Factoring

  • 1. Factoring is a transaction in which a business sells its accounts receivable, or invoices, to a third party commercial financial company, also known as a “factor.” This is done so that the business can receive cash more quickly than it would by waiting 30 to 60 days for a customer payment. Factoring is sometimes called “accounts receivable financing.”
  • 2. 1.You perform a service for your customer. 2.You send your invoice to a factoring company. 3.You receive a cash advance on your invoice from the factoring company. 4.The factoring company collects full payment from your customer. 5.The factoring company pays you the rest of your invoice amount, minus a fee.
  • 3. 1.Factoring can be customized and managed so that it provides necessary capital when your company needs it. 2.The financing does not show up on your balance sheet as debt. 3.Factoring is based on the quality of your customers’ credit, not your own credit or business history. 4.Unlike a conventional loan, factoring has no limit to the amount of financing. 5.Factoring aligns well with start-up businesses that need immediate cash flow.
  • 4. ABC Transport is a trucking company that wants to double the size of its fleet over the next two years and serve more clients in the West. The company has just landed a new customer on the West Coast who needs freight shipped from Kansas City to Los Angeles. The customer will pay for the service within 30 days, but that won’t cover the immediate fuel, payroll and maintenance costs of running the route. The owners of ABC Transport have been in this situation before. They feel that the lack of available cash flow has prevented the company from taking on new business. ABC Transport turns to a factoring company, selling the West Coast customer’s invoice in exchange for a 90% advance on the total amount within a day. The influx of cash replenishes the trucking company’s reserves, allowing it to run the Kansas City-Los Angeles route. Factoring also gives ABC Transport the flexibility to take on new customers as well.