A factor is a type of financial services provider that purchases commercial invoices from businesses and receives payment on the invoice from the customer or debtor. This differs from traditional banking in that the factor takes on the responsibility of collecting the debt on behalf of the company, instead of relying on the company to collect payment themselves.

For the company, the advantages of using a factor are that they gain immediate access to cash as soon as the invoice has been raised. By selling their invoices to a factor, they do not need to wait 30, 60 or even 90 days for their customer to pay up. This can provide a much-needed boost to the cash flow of any business, particularly in times of difficulty. The factor charges a commission for this service and the amount of this commission is largely determined by the creditworthiness of the debtor.

The factor also helps reduce bad debt by using their credit checks and in-depth knowledge of the industry to assess the creditworthiness of the customer before deciding to purchase the invoice. Factors tend to secure payment of the invoices by having the customer agree to pay the factor directly, leaving the customer operating with the factor, instead of with the business.

An additional benefit of working with a factor is that they can provide customer financing, meaning customers can make payments over an extended period, reducing their financial burden and making it easier for them to pay what is owed.

Overall, using a factor can provide businesses with access to immediate cash, reduced risk of bad debt, and customer financing, making it an invaluable resource for companies wishing to boost their cash flow.