What Is Factoring?

Factoring, or accounts receivable financing, is the sale of invoices or accounts receivable to a third party in exchange for immediate cash. For many companies, factoring invoices is an effective alternative to a standard line of credit and it allows them to take on new orders, buy inventory, meet payroll, and improve cash flow.

Overview of factoring:

 

How Does Factoring Help My Business?

In factoring, there are typically three parties involved:

The Factor (the company purchasing the invoice)
The Client (the company selling the invoice)
The Debtor (the company whose invoice is being sold)

Without factoring, the cash flow for a company may look like:

Cash Flow without Factoring

When utilizing factoring, the cash conversion is shortened significantly, freeing up cash and allowing the supplier or client to purchase inventory, pay employees, fund growth, etc:

Cash Flow with Factoring

Ready to Get Started?

Read more to find out if factoring is right for your company or contact us today to start financing your own business through the Southern Bank’s customized factoring program.