About Factoring

Factoring is a financial tool by which a company gets immediate finance from a third party upon its accounts receivable. The finance is arranged at a discount on invoices the company produces. The factor is repaid by the customer of the company on whose name the invoices are made. So factoring revolves around the seller, debtor, and the factor. Generally, the finance is around 80 per cent of the approved receivables.

There are two types of factoring – recourse factoring and non-recourse factoring. Recourse factoring allows the factor to claim the advance from the company, if the customer of the company fails to pay the amount. It is cheaper and requires minimum formalities.

Whereas, in non-recourse factoring, the factor assumes risk and incidentally the cost is higher. Even if the customer or debtor fails to pay the advance, the seller’s responsibility ends with paying only the interest amount for the stipulated period.