Invoice factoring is the sale or assignment of invoices to a factor that provides funding and commonly manages collection of the receivables. The factor advances part of the invoice value, holds a reserve and pays the balance after collection, less agreed fees and adjustments.
How does Invoice Factoring work in practice?
The seller assigns approved invoices to a factor and may receive an advance before customer payment. The factor can also administer the ledger and collections. When the customer pays, the factor deducts the agreed charges and releases any remaining reserve. Recourse terms decide who ultimately bears a qualifying non-payment loss.
What the file should show
Track each assigned invoice, advance, reserve, customer payment, credit note, chargeback and final settlement.
What does Invoice Factoring not establish?
Factoring may be with or without recourse. The contract, rather than the product label, determines who bears non-payment and dispute risk.
