Invoice Factoring is a financing arrangement where a business sells its invoices to a third party at a discount in exchange for immediate cash.
How It Works:
- The business sells goods on credit.
- Invoices are sold to a factoring company.
- The business receives immediate funds.
- The factoring company collects payment from customers.
- Remaining amount is settled after fees.
Benefits:
- Provides immediate cash flow
- Outsources collection process
- Reduces risk of delayed payments
- Supports business expansion
Example:
A business sells its invoices to a factoring company and receives funds without waiting for customer payments.