Factoring Receivables: When It Makes Sense, When Not

Factoring accounts receivables, also known as invoice factoring, is an established way of providing working funds for a business. In its simplest form, factoring is when you sell your invoices (or accounts receivables) to a financing company called a factor. The factor advances a large chunk of the invoice amount, say 80%, immediately. The factor takes responsibility for collecting the invoice. When it is collected, they pay you the rest, less a factoring fee. Factoring fees may range from 2% to 15% of the invoice amount.