What is factoring and factoring definitions ?

Under the terms of the factoring facility the client submits copies of sales invoices to the factoring company (either by post or electronically) who in return makes available a pre-agreed percentage of the value of the invoices for immediate drawdown.

The factoring company maintains the sales ledger on behalf of the client and will contact the customer for payment of the invoices if and when they become overdue.

When the customer has paid the debt to the factor, the client becomes eligible for the balance of the invoice less the factor’s charges.

The main benefit of factoring is in it’s flexibility as unlike more traditional forms of funding, the amount of finance available is tied to sales so the availability of finance is always there to meet rising sales.

The different types of factoring facility

Factoring with recourse

The factor carries out the administration of the sales ledger and the collection of debts with the client remaining responsible for bad debt losses.  

Factoring without recourse

 Non-recourse factoring is where the factor assumes the responsibility for bad debt losses (100% of credit covered invoices) in conjunction with its administration of the sales ledger and the collection of debts.

 Agency factoring

This is a form of factoring whereby the client, rather than the factor, retains responsibility for the maintenance of the sales ledger, credit control and collection of debts, although the customer is aware of the factoring arrangement and debtor payments are still be made directly to the factor.

This type of facility is therefore generally only suitable for those businesses that already maintain a professional sales ledger and credit operation especially where there would be a minimum benefit from a full factoring service.

Please see main introduction page for details of the reservations that we have with the way that some factoring companies operate. Please click on the link for factoring solutions main page