In the world of business finance, factoring remains one of the most widely used methods for managing cash flow. Often referred to as accounts receivable factoring or invoice factoring, this financial transaction allows businesses to bridge the gap between issuing an invoice and receiving payment.
For companies scaling quickly, waiting 30, 60, or even 90 days for client payments can create a "growth bottleneck." Factoring is designed to eliminate that wait by turning your unpaid invoices into immediate working capital.
Factoring is the process of selling your accounts receivable to a third party (a "factor") at a discount. It is not a loan, but a purchase of assets that provides immediate liquidity. While it solves short-term cash flow issues, it requires careful management of fees and customer relationships.
The factoring process is a three-party transaction involving the business, the factor, and the customer. Unlike a traditional bank loan, which focuses on your company’s credit score, factoring focuses primarily on the creditworthiness of your customers.
Not all factoring agreements are the same. Choosing the wrong structure can lead to unexpected liabilities.
This is the most common form. Under recourse factoring, your business remains responsible if the customer fails to pay the invoice. If the client defaults, you must buy the invoice back from the factor. This is generally the least expensive option.
In non-recourse factoring, the factor assumes the credit risk. If the customer goes bankrupt and cannot pay, the factor absorbs the loss. Because of this added risk, non-recourse factoring fees are significantly higher.
Instead of committing your entire accounts receivable ledger, spot factoring allows you to sell a single, specific invoice. This offers more flexibility but usually carries a premium price tag per transaction.
The "price" of factoring is rarely a simple interest rate. It is comprised of several moving parts:
Understanding where factoring sits in the capital stack is vital for any operator.
While factoring has served businesses for decades, modern operators often find the manual process of selling individual invoices to be a hurdle to true scale.
At Float, we provide a more seamless approach. Instead of the "bill-by-bill" friction of factoring, we offer a revenue-linked credit facility. This provides the same immediate liquidity but is based on your total revenue performance, not just your unpaid bills. It’s faster, invisible to your customers, and scales automatically as you grow.
No. Factoring is the purchase of financial assets (your invoices). Because it is a sale, it is not technically debt, which is why it doesn't always appear on a balance sheet in the same way a loan does.
It can. In "notified" factoring, your customers must change their payment habits. If the factor’s collection team is too aggressive, it can reflect poorly on your brand.
Factoring is most common in B2B industries where long payment terms (Net-30 to Net-90) are standard. It is less common in B2C or retail environments.
Factors don't like it when one customer represents your entire revenue. A concentration limit restricts how much of your total factoring facility can be tied to a single client.
