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A bank or financial institution provides a letter of credit to a small business, which guarantees payment to someone else once the conditions of the letter are met. A letter of credit is a great way for a business to order inventory and access trade credit without reducing cash on hand until the goods are…

Recourse factoring is the most common type of invoice factoring. The business that sells a customer’s invoice retains the risk and liability if the debtor fails to pay. This means the seller will essentially have to repurchase receivables sold to a factor if the lender can’t collect on the invoice. This effectively converts a factoring…

Non-notification factoring, also called confidential factoring, is a kind of factoring relationship where there is minimal involvement from the factoring company. The seller typically retains the responsibility of collecting on the factored invoices, thereby limiting any interaction between the factoring company and its clients. In cases when a factor needs to communicate with a seller’s…

An assignment of claims is the transfer of the right to claim from one creditor to another. This enables a small business owner to transfer an unpaid invoice to a lender creating an invoice factoring transaction. The transaction may be governed by the Assignment of Claims Act, which outlines the rights and obligations of each…

Spot factoring, also known as single-invoice factoring, is when a business sells an individual customer invoice to a lender to receive advance funding. The factoring relationship typically ends as soon as the debtor pays the invoice. It’s best for businesses that prefer flexibility because their invoices or factoring needs are less predictable. How Spot Factoring…

An invoice factoring transaction typically consists of three parties. They are the factoring company, the seller of the invoice, and the debtor who’s responsible for paying the holder of the invoice. For a small business, the account debtor is the customer who owes the invoice. How an Account Debtor Can Impact Factoring The creditworthiness of…

With advance factoring, a factoring company pays a business a percentage of future receivables in advance, typically between 75% to 90%. The arrangement between the seller and the factoring company is kept confidential. Hence, the responsibility of collecting on the receivables remains with the small business. This option is rarer than traditional invoice factoring and…

Contract factoring is the solution small businesses use for long-term factoring agreements. A small business may contract to factor invoices for a particular project or from a particular customer for an extended period in exchange for paying a lower fee. This ensures the business can receive financing and reduces the research costs for a lender….