Factoring 101: Don’t Make It Difficult

One thing I love about the factoring industry is that once we remove all the layers of speculation, it really is a straight forward business.

People new to the industry, both brokers and companies thinking about using factoring services, have an uncanny ability of making things more difficult than need be.

Terms like “hold back,” “reserves,” “advance rate,” and “points” can put people on edge.

Add to the fact that just about everyone tries to compare “factoring vs. bank loans” and it is no wonder many people leave the table confused.

The reason I bring this up is that many times a factoring broker will talk about items or “terms” that the prospective client has yet to bring up. Why over complicate the issue?

In the end, you have one focus as a factoring broker… help the client get money!

This should be the primary focus during any conversations.

One of the client’s best options to get money is by selling existing invoices. This comes with numerous advantages. Here are just a couple:

1. Factoring is not a loan. Therefor the prospective client is not incurring debt (or paying interest on that debt).

2. The client also has the flexibility to sell as many (or as few) invoices as they want.

3. The client is typically free to spend the money however they see fit (not managed by a bank administrator looking for more assets to leverage).

There is no doubt that many other variables come in to play – especially when it comes to due diligence. But much of that will be handled by the Factoring Company (investor, factor, or funder) – so stick to what you need most – signing up new clients.

So, in the end (or should I say the “beginning”) don’t over complicate discussions. Keep your focus on helping the client (i.e.: getting them money to help fund and grow their business) and the rest of the details will fall in place.


  1. Csaba Halasz says

    I am new to this business, but I need more clarification on certain aspects That appear unlear. E.g.: Some factoring companies offer Letter of Credit as a prefinance of a deal. Than they want this money back, so it’s clear, that the client must pay. But how can they prefinance what they will refinance? To provide Proof Of Fund and / or Letter Of Credit in advance is probably easy, but how this system works?

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