How does Factoring work?

Gap-fill exercise

Fill in all the gaps, then press "Check" to check your answers. Use the "Hint" button to get a free letter if an answer is giving you trouble. You can also click on the "[?]" button to get a clue. Note that you will lose points if you ask for hints or clues!
   advantage      amount      bankrupt      bills      business      cash      days      due      employees      factoring      invoice      money      order      paid      payments      places      records      retailers      ship      stores   
Factoring is a way for owners to get working capital to run their business and make sure they’ll get .
Let’s say you make furniture and all across the country sell your furniture in their . One day one of the retailers places an for a 100 tables.
So you them the tables and send them an . Now that you shipped the order, you need so that you can buy the raw materials to
make more tables and pay your . But there’s a problem.


The retailer might not pay the invoice for 30, 60 or even 90 . But you need that now so you can buy new material and pay your . This is where a company can help.
When a retailer an order with you, the factoring company makes sure the retailer is credit worthy to pay for the order. They keep of all payments. So you always know which retailers have paid, and which ones haven’t.
And they collect from retailers, so you don’t have to.
The of this is that as soon as the tables have been shipped, the factoring company could advance you a percentage (e.g. 80 - 90 %) of the of the invoice.
So you can put that money to work right away... instead of waiting for the retailer to pay that invoice.
Once the retailer has paid the invoice, the factoring company remits the balance of the purchase price to you. If the retailer doesn’t pay the invoice when it’s
, the factoring company calls to follow up on payment.
Even if the retailer goes the factoring company will still pay the full amount that you are owed. And that’s how, with factoring you can
can be sure that you’ll get paid.