The Procurement Glossary » Invoice Financing (Factoring)
Invoice Financing (Factoring)
Finance & Payments
Also known as: Factoring
Definition
A supplier's use of its unpaid invoices as collateral to obtain immediate cash from a financier.
Explanation
Factoring lets a supplier convert receivables to cash before the buyer pays, at a discount. It is supplier-initiated, unlike buyer-led supply chain finance. Understanding it helps buyers gauge supplier cash-flow pressure.
Example
Short of cash, the supplier factors its RM200,000 of receivables to a lender for immediate funds.
Related terms
- Supply Chain Finance (SCF) — Financing arrangements, often bank-backed, that let suppliers get paid early while the buyer pays on normal terms.
- Working Capital — The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables).
- Cash Flow — The movement of money into and out of a business over time.
- Days Sales Outstanding (DSO) — The average number of days a company takes to collect payment from its customers.
Frequently Asked Questions
What is Invoice Financing (Factoring)?
A supplier's use of its unpaid invoices as collateral to obtain immediate cash from a financier. Factoring lets a supplier convert receivables to cash before the buyer pays, at a discount. It is supplier-initiated, unlike buyer-led supply chain finance. Understanding it helps buyers gauge supplier cash-flow pressure.
Can you give an example of Invoice Financing (Factoring)?
Short of cash, the supplier factors its RM200,000 of receivables to a lender for immediate funds.
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