Rather than lending on a company's eligible commercial accounts receivable, a factor (lending company) will purchase the receivables.  This provides the company with quick cash and relieves it of collection efforts.  The loan consultant can explain the advantages of this type of financing and it's effects on the company's financial statements.

Typically, the factoring company will purchase the invoices at a discount depending upon the age of the invoices and give anywhere from 60 to 90 percent of the invoice amount. The money which is received from the factoring company is not a loan since the invoices have been purchased.The small business is no longer involved in the collection of the invoices since it no longer owns them.A factoring facility is far easier for a small business to get than is an accounts receivable line.Once funded, the factoring facility is far easier and sometimes more economical for a company to use and maintain than is an accounts receivable line.Some factoring companies go beyond the basic purchasing of receivables, and will offer you a complete professional commercial credit department function to go along with it.

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