Factoring

A business ships $100,000 worth of goods to a customer. The customer will pay the invoice in 60 days. The business needs cash today to meet payroll and purchase inventory. The business could wait 60 days, but waiting is expensive. Banks are slow. The business needs immediate liquidity. Invoice factoring companies offer instant cash. The factor buys the invoice for $80,000 to $90,000, paying immediately. The factor collects the full amount from the customer in 60 days, pocketing the spread. The business gets cash today, and the factor gets a guaranteed return in two months. Everyone is satisfied. Factoring is attractive to businesses with credit-worthy customers, but inconsistent cash flow.