Invoice Factoring

Invoice factoring is a form of invoice finance in which the finance provider (factor) purchases your outstanding invoices, advances up to 90% of their face value immediately, and then manages credit control on your behalf - chasing customers for payment. Because the factor manages collections, customers are aware that their invoices have been assigned (this is 'disclosed' factoring).

When a customer pays the factor, the remaining balance (typically 10% minus fees) is released to you. Factoring costs are typically expressed as a service fee (percentage of invoice value) plus a discount charge (interest on the funds advanced). Total costs typically range from 0.5% to 3% of invoice value per 30 days.

Non-recourse factoring includes bad debt protection - if a customer becomes insolvent and cannot pay, the factor absorbs the loss. Recourse factoring means unpaid invoices are 'charged back' to you after a defined period (typically 90 days). Non-recourse costs more but protects against debtor insolvency.

Related terms