Factoring is not a Loan

What really sets factoring apart is the way it’s structured. Instead of being treated like a traditional loan, factoring is actually a sale of an asset the invoice itself. 

 

Factoring is not a loan but a purchase and sale between two parties. Think of it like this: a business that’s waiting on customer payments sells that invoice at a small discount in exchange for immediate cash.

 

In this setup, there are two key players. On one side, you have the Seller the business that issues the invoice and needs quicker access to funds. On the other side, there’s the Buyer the factoring company that purchases the invoice, takes on the responsibility of collecting payment, and provides the business with upfront working capital.

This structure makes factoring different from borrowing because the business isn’t taking on new debt. Instead, it’s simply turning a receivable into usable cash, which can help keep operations running smoothly without adding another liability to the balance sheet.

 

Once a factor reviews and approves the receivables it wants to buy, those invoices are expected to pay just like they normally would typically within 90 days or less from the invoice date. 

 

As those payments come in, the factor frees up room for the business (the Seller) to sell more invoices. This cycle repeats over and over, turning outstanding invoices into immediate cash flow and keeping the Seller’s working capital fluid.