Factoring is the purchasing of accounts receivable for cash, often within 24 hours from the receipt of approved invoices.
A factor is not a bank. It does not lend money. It does not control another company's assets. Factors only purchase another company's assets (accounts receivable). Factors specialize in credit and collection; essentially they function as the company's accounts receivable department.
Assuming the Credit Risk
A factor assumes the credit risk for any invoice it buys. In conventional factoring, a factor buys the invoice on a "without recourse" basis. The factor does not ask the client company to pay back the money advanced on amounts not collected for insolvency reasons.
Collecting the Payments
The factor also handles the credit and collection function of a client company. It grants credit, maintains ledgers, and collects payments.
The concept of factoring is simple: exchanging accounts receivable for cash. The procedures of factoring are not disruptive to your company's normal operations. WestFactor makes it all easy. In fact, WestFactor becomes your accounts receivable department - the only thing WestFactor does not do is produce the invoice! Here is a picture of how it works.
