In the specific context of factoring, a factor or factoring company is a financing partner that purchases a business’ invoices in exchange for cash (a monetary amount). The business sells part or all of its outstanding receivables to improve its working capital and related cash flows, and avoid a delay of long payment terms.

The factor or factoring company verifies the invoices, funds up to a certain percentage (e.g., 80- 90%) of the invoice face value, then collects on those the amounts directly from the respective customers (by virtues of a notice of assignment). The factor collects from the end customers on the standard payment terms, then release the remaining amount of the invoice value to the business, after deducting a fractional factoring fee (factoring charges).