Invoice factoring, otherwise known as invoice discounting or factoring, is a business strategy by which a companys invoices or receivables can be signed off to an outside company, thereby securing immediate cash. Invoice factoring facilitates easy receipt of money, which otherwise would be available only after a stipulated period. This involves the selling of an account receivable before the account is due, by discounting the account. Invoice factoring is usually resorted to when there is a sudden need for capital. Invoice factoring is also known by the names receivables factoring and debtor financing. Invoice factoring does not require collaterals and is a relatively simple procedure.

The money obtained by the factoring process can be used for investing, meeting overhead costs, or for any other reason. The factoring company usually takes one percent of the money as commission. Factoring is a better option in times of financial crises because factoring companies are quick and reliable, whereas the client may not be able to pay the amount due at the expected time.

Invoice factoring is more beneficial to the factor or new owner. The seller is temporarily relieved because he receives his working capital and the buyer can purchase accounts for at least 25 % less than what they are actually worth, which is an advantageous strategy for him. The factor takes the responsibility of collecting the money due. When the money is received, the factor is expected to pay additional fees. The factor may allow some small discount on the outstanding debt, to the indebted company. It may offer some other plans encourage speedy debt disposal.

Factoring companies can be chosen depending on their reputation. It is also good to compare their rates, as some companies will expect more than others, in terms of fees.