What do factoring companies do?

Factoring companies buy accounts receivable or invoices from businesses that want to receive cash more quickly instead of waiting for payments for days. Factoring is also referred to as accounts receivable financing.

Factoring companies can advance money within 24 hours after receiving the invoice at advance rates that range from 80 to 90 percent. The advance rate depends on customers' credit worthiness and the industry. After collecting the money from the debtors, the company pays the rest of the invoice less the service fee. Factoring helps businesses maintain cash in hand for operation and gives business more flexibility since it's not a loan and assumes no debt.