How factoring works

The factor and the seller of invoices enter into a legal assignment on the sales ledger debt. The invoices should clearly state the fact of the legal assignment. The company using factoring should send the copy invoice to the factor.

The factor is liable to pay an agreed percentage of the total value of invoices within an agreed time. The factor collects payment from debtors, and pays the balance amount of invoices to the seller after deducting a service fee and interest for the advance amount.

The factor will take over the sales ledger, and issue statements and collect payments from customers.