Invoice Factoring
Definition
Selling your unpaid customer invoices to a factoring company for an immediate cash advance, usually 70% to 90% of the invoice value, minus a fee.
Want a deeper explanation?
Factoring helps wholesale-heavy brands bridge the gap between shipping to big retailers and getting paid. It is based on your customers' credit, not just yours.
The fee can look small but is expensive when annualized over a short term. Watch for: factoring fees booked as a reduction of sales, which hides the real cost of the financing.
Example
You factor a $50,000 retailer invoice on Net 60. You get $42,500 now, and the rest minus a 3% fee ($1,500) when the retailer pays.