Invoice factoring is a financial tool whereby a company sells its outstanding accounts receivable at a discount to accelerate its cash-flow. With this financial tool, companies who sell their products or services in a B2B environment (business to business) and offer their clients payment terms from 30 to 90 days, can obtain an immediate advance of up to 90% of their eligible accounts receivable. Selling your accounts receivable to a company like Summar is called Factoring.
There are two types of Factoring:
Recourse Factoring is when your factoring company purchases your receivables but your company must buy back any receivable that the factor cannot collect payment on.
Non-recourse Factoring means that you sell your invoices to the factoring company whom, under certain pre-negotiated terms, purchases your invoices without any responsibility back to your company. In other words, the factoring company purchases your receivables on a firm basis and will usually assume the risk of non-payment solely for credit reasons.