Factoring

Sellers sell individual or multiple outstanding invoices to a Funder at a discount and Funder assumes the responsibility for managing and collecting the underlying invoices.  This allows the Seller to receive cash payment for these invoices prior to their original maturity date at a lesser value. One of the main differences between Factoring and Receivables Discounting is that with Factoring, the Funder would manage the sales ledger and payment collections from the Buyers.

Factoring is commonly structured under a factoring agreement between Funder and Seller, whereby the Seller provides the Funder with an assignment of rights to the receivables being financed.  Factoring normally requires a notice of assignment to be provided to the Buyer as the ownership of the receivables is transferred from the Seller to the Funder. The factoring agreement may define a ‘true sale’, without recourse financing structure, meaning the rights and title to the receivables are transferred to the Funder; otherwise the factoring agreement may be define a recourse based model where the Seller no longer has rights to the receivables but is still liable for any maturity payments.

Factoring is normally disclosed to the Buyer (unless there is recourse to a credit worthy Seller in a favorable legal jurisdiction).

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