AFO · Glossary
Factoring
Sale of receivables to a third party (the "factor") who advances cash up front and collects from the customer.
What this term means in practice
Factoring sells receivables outright. The factor advances 70–90% of the invoice face value immediately, collects from the customer when the invoice comes due, then remits the balance minus the factoring discount (typically 1–4% per invoice, depending on customer credit and invoice age).
Recourse factoring leaves the credit risk on the seller — if the customer doesn't pay, the seller buys back the invoice. Non-recourse factoring transfers the credit risk to the factor, who underwrites each customer and prices accordingly. Non-recourse is more expensive but useful when the customer is creditworthy but a default would be catastrophic for the seller.
Factoring is usually a structural last resort when an ABL revolver isn't available — the discount rates compound annually to something well above ABL pricing on a typical 45-day DSO. It earns its place when the business needs cash within days, when the customer base is too concentrated for ABL eligibility, or when the seller wants to outsource collections.
Where this matters in the catalog
Programs that turn on Factoring.
Invoice Factoring & AR Finance
Immediate cash against outstanding receivables. Suits B2B businesses with long DSO.
ABL Revolver (Asset-Based Lending)
Revolving line tied to eligible receivables and inventory. Scales with the business.
Where the definition meets your situation.
The CPA can walk through how this concept applies to your business in twenty minutes — what providers will ask, where the negotiation matters, what the trade-offs actually look like in your numbers.