What it is
Factoring is where an agent (or factor) buys all or some of your
outstanding invoices, sometimes called accounts receivable or debt
outright, advances you up to 90% of their value and repays you the
remaining amount, minus a commission plus interest on the advance
when the accounts are settled.
The amount a factor is willing to advance will depend on the calibre
of the debtor. You will be granted a higher percentage on money
owed to you from a blue-chip company or household name than from
a sole trader.
The factor then administers your sales ledger, taking responsibility
for the debts Sending out account statements to your client and
chasing up outstanding payments. Bear in mind however, in some cases
they can still pass bad debts back to the clients if these are incurred
(with recourse factoring).
Good factoring companies will normally seek to work efficiently
and politely with your clients to ensure that your firm’s
goodwill remains intact where possible.