Factoring is a simple extension of your current accounts receivable process.
- Following your normal course of business, you sell your product or service to a customer, and issue an invoice for the value of the goods or service.
- To factor the invoice, you follow the sale by sending the factor a copy of the invoice.
- The factor processes the invoice, and within 24-28 hours, the factor gives you a percentage of the invoice amount, called an advance payment. This is the first of two payments you receive when factoring an invoice.
- The customer, when ready to make payment, directs payment to the factor.
- When payment is received, the factor withholds a small factoring service fee, and returns the difference, or reserve back to you.
- The reserve is the second payment you receive from the factor for the invoice.