Factoring is a means of financing that enables a company to working capital requirements.

The company signs a agreement with a factoring business in which it surrenders certain debts that it holds on its business clients. The factoring business carries out a credit transaction by buying the company's claims and obtaining payment directly from customers. It must therefore have the approval of financing business.

Factoring is reserved for companies who perform business-to-business activities (BtoB).

The company may assign all its claims on its business customers. However, it must not forget to forward the relevant invoices to the factoring business by the factoring agreement.

Factoring company and business (factor) will conclude a factoring agreement.

There are two options:

• The factor decides to post all invoices : the company assigns all its invoices to a factoring business which is subrogated to the company's rights. This means that it is up to him to be paid for the claims transferred to professional clients. In case of unpaid, it cannot turn against the ceding company. By validating invoices, the factoring business accepts to bear the risk that they will not be paid.

• The factor validates only part of the invoices : the company may assign all its invoices to the factoring business. Factoring businesses take the risk of not being reimbursed only on invoices they have validated. In contrast, for invoices which it has not approved, the factoring business will be a mere agent. It will act as an intermediary between the customer and the company to obtain payment of invoices.

Factoring can provide a company with following benefits :

• It allows you to meet your cash flow needs very quickly.
• It avoids the inconvenience that may be caused by payment periods granted to professional customers.
• It allows the company to get rid of the risk of not being paid by its customers for invoices validated by the factoring business.
• It allows you to delegate the collection of invoices.

Factoring, on the other hand, also disadvantages.

Among all the drawbacks, it is costly for the company. By assigning its invoices to a financing business, the latter recovers part of the amount for which the customer is liable. The percentage varies depending on the factoring business. The company also loses some of the interpersonal exchanges with its professional clientele, which can eventually damage its relations with its clients if things go wrong with the factoring business.