Factoring is the selling of a business's commercial accounts receivable for immediate cash. A factoring company pays the business a percentage of the face amount of the accounts receivable and deducts a fee for the cost of factoring. The factoring company will then collect all receivables for their client. Factoring also allows businesses automatic access to credit and collection services with no need to spend profits on maintaining accounts receivables.
More specifically, factoring provides you with the funds to cover business expenses. The financing transaction is settled once your client pays. You conduct business as usual; delivering product or service to your client then generating an invoice, the factoring company advances you a pre-determined percentage of the invoice, the remainder is held in reserve. Once your client pays the invoice, you receive the remaining percentage of the invoice, less a small financing fee.
Factoring is not a loan; it is far simpler and faster than typical bank financing. With factoring, there are no monthly payments, no new debts, no loss of control, no giving up of equity and no lengthy approval process. Factoring is not a loan but rather the transfer of assets.