What is factoring? Infographic

Emily RicksFreight Market Blog

What is factoring? Infographic

Factoring improves a supplier’s cash flow. This is how …

Traditional supplier/buyer interaction 

  • A supplier makes a shipment or delivery and sends an invoice to the buyer.
  • The buyer has the option to pay for the goods by the due date on the invoice or, in many cases, to pay the invoice earlier at a discount.

Enter: Factoring

Factoring improves a supplier’s cash flow. This is how …

  • The supplier makes the delivery and then sells its invoice(s) or accounts receivable (AR) to a third party, often a bank or financial institution, known as a factor.
  • The supplier receives a discounted portion of cash in advance of actual payment of the goods from the buyer.
  • The factor receives a fee, often retaining a discounted portion of the gross invoice once it is paid.
  • The fee to the factor covers its cost of processing invoices and collecting payments, as well as its lending cost of funds.

Source: https://www.freightwaves.com/news/what-is-factoring (Todd Maiden)