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Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs. Forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their receivables to a forfaiter.

Invoice Factoring can offer a quick solution in providing working capital just like traditional bank loans, when your bank cannot provide it. It is used from many business organizations to boost their business and leave the competition behind. 
To understand how invoice factoring can speed up your cash flow and move your company forward, see listed benefit points below:

  • Normally a Company can get the funds in less than 72 hours
  • No long term contracts
  • No restriction on funds
  • No minimum requirement
  • Not take on debt, cash without incurring debt
  • Alleviate or eliminate debt
  • Firm financials reports are not needed
  • Little credit history of the business is required
  • Fees for factoring are low
  • Gives an alleviation in timing of when the Company will get paid and how the Company would pay the bills

Factoring is a solution to receive immediate cash. As recently became very useful and successful for small business, invocice factoring gives the opportunity to a company to be more flexible in offering best selling periods of time to clients, assuring more cash flow.
There are two different types of factoring:

Recourse Factoring: it allows the factor to go back to the seller if payment is not received. The credit risk does not transfer to the Factor during the recourse factoring process. In the event of non-payment by the client, the seller must buy back the invoice with another invoice (credit worthy).
Non Recourse Factoring: it puts the risk of non-payment fully on the factor. If the client does not pay the invoice, it’s the factors problem to deal with and they cannot seek payment from the seller. This often seems like a great way to go, but the factor will only purchase solid credit worthy invoices and often turns away average credit quality customers. 
Depending on how the client is able to pay the invoices on a regular basis, recourse factoring will provide the lower factoring expense. Non recourse factoring may be better to eliminating all risks and is important in case of higher factoring fee structure.