Understand this lender type
A factoring company purchases eligible receivables and commonly advances a portion of invoice value before the customer pays. Fees, reserves, recourse, and collection responsibilities determine the practical outcome. Because the customer’s payment is central, the factor examines invoice quality and customer credit as well as the selling business.
How to assess the fit
Compare providers using a realistic sample of invoices with different sizes and payment dates. Calculate cash received immediately, fees over the expected collection period, and the reserve released afterward. Ask how new customers are approved and how quickly additional invoices can become eligible for funding.
Questions that deserve an answer
The cheapest headline fee may exclude minimum monthly charges, concentration limits, aging charges, or termination costs. Customer notification and collection tone can affect commercial relationships. Find out who handles disputes and whether the business must repurchase unpaid invoices. Check existing security agreements before promising receivables to another provider, because competing claims can delay funding.
Your next-step checklist
- Sample invoice-level cost calculation
- Recourse and dispute process
- Customer notification and collection approach
- Minimums, reserves, and contract termination
Crack this combination.
Why should you review a factor’s collection process?
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Sources & further reading
This file draws on the following references. Product availability and requirements must be confirmed with the provider.
BDC: how factoring worksLevr: accounts receivable reportsLevr: reviewing a debt term sheet