From Invoices to Liquidity: How Factoring Works

The process of invoice factoring involves a few key steps. Initially, a business identifies which invoices to factor in and sells them to a factoring company. The factoring company then reviews the invoices and, if deemed creditworthy, provides the business with an advance, typically representing a significant portion of the invoice value (around 70% to 90%). This advance provides the business with immediate liquidity.

The factoring company then takes on the responsibility of collecting the payments from the business's customers. Once the customers fully pay the invoices, the factoring company remits the remaining balance to the business minus a fee for their services. This fee is often determined by factors such as the volume of the invoices, their risk level, and the time it takes for customers to pay. Factoring thus offers businesses a practical way to manage cash flow without the burden of debt or lengthy loan processes.

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