Invoice factoring is a proven financial strategy for businesses looking to improve cash flow and manage working capital effectively. By selling unpaid invoices to a third-party factor at a discount, businesses can access immediate funds without waiting for customers to pay. In this blog, we’ll explore how invoice factoring works, its benefits, and how Financely can help your business leverage this solution.
Invoice factoring is a financial arrangement where a business sells its accounts receivable (invoices) to a factoring company in exchange for immediate cash. The factor advances a percentage of the invoice value—typically 70-90%—and collects the payment from the customer when the invoice is due. Once the customer pays, the factor remits the remaining balance, minus a fee.
The process of invoice factoring is straightforward, as illustrated in the flowchart below:
Business provides goods or services and invoices the customer.
Business sells the invoice to a factoring company.
The factor advances a percentage of the invoice value.
The factor collects payment directly from the customer.
The factor remits the remaining balance to the business.
| Aspect | Invoice Factoring | Invoice Financing |
|---|---|---|
| Ownership of Invoices | Factor owns the invoices | Business retains ownership |
| Advance Percentage | 70–90% | 80–95% |
| Customer Communication | Factor interacts with customers | Business interacts with customers |
| Risk Management | Factor assumes credit risk | Business assumes credit risk |
Invoice factoring is ideal for businesses facing cash flow challenges due to delayed customer payments. It is particularly useful for industries such as:
At Financely, we provide comprehensive trade finance solutions, including invoice factoring. Our team offers:
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