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.

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:

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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:

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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.