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Debtor Finance

Debtor finance, invoice finance or "factoring" is a form of asset based financing using the businesses invoices or "accounts receivable" as collateral. The business sells its invoices to a third party at a discount, giving immediate access to the funds owed by customers and allowing for better management of cashflow fluctuations.

In a typical factoring transaction, invoices are sold to a buyer (“factor”) who takes on full ownership of the invoices and the factor bills the debtor (customers) and collects on the invoice. Occasionally the original seller of the invoices collects on them as an agent of the factor. Factoring can be done “without recourse” where the factor bears the loss if the debtor does not pay. If the invoices are sold “with recourse” then the factor can collect unpaid invoice amounts from the original seller.

Factoring is typically used by manufacturing companies in need of cash to purchase raw materials or high growth companies where cash needs outstrip the pace at which they are paid by their customers.

To learn more about how invoice finance can help your business, contact a consultant today.

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