What is Factoring?

Factoring is a transaction where a business sells their accounts receivable, or invoice, to a commercial financial company, also known as a “factor”. This is done so that the business can receive cash quickly, instead of waiting the 30, 60, or 90 days it can take to receive payment on work they have already completed. Frontline will advance anywhere from 50% to 95% of an invoice depending on the industry, your customers credit history, and other criteria. Once we collect from your customers, the factor pays you the reserve balances of the invoice, minus our fee. The benefit is immediate. Instead of waiting one or two months for customer payment, you now have cash in hand to continue to grow and operate your business.

Factoring is not a loan as no debt is assumed. The funds are unrestricted, providing you with more flexibility than a traditional bank loan. As long as it’s a good customer, feel free to bid on the biggest and best jobs without worry of being able to cash flow¬†your business while waiting to get paid.

Factoring can be traced back to England prior to 1400 and coming to America with Pilgrims around 1620. It was a common practice then, and appears to be related to early merchant banking activities. Today, the factoring rationale is still the same; to help businesses grow and offer cash flow solutions by advancing funds. Like all financial tools, factoring has evolved over the years, with the advance of computers leading the evolution.It has grown as an effective way for companies to cash flow their business and not rely on bank loans, which are much more difficult to obtain.