The Blurred Lines of Factoring

Factoring Not Bank LoanFactoring is one of the oldest known business practices that date as far back as the Ancient Roman Empire when merchants would enlist the help of collectors to settle trade debts.

The Definition of Invoice Factoring

Factoring is generally defined as an arrangement whereby a factor purchases an account(s) receivable from a business at a discount to the face value of that receivable. The factor earns a fee based on the number of days that receivable remains unpaid. Effectively the business is no longer dependent on the conversion of the accounts receivable to cash from the actual payment from their customers which takes place on typical 30 to 90 day terms.

Today, factoring is used more than all other types of business financing combined. Many of America’s major companies are enthusiastic users of this finance system and have been for years. The need for cash flow is still a major part of any business and the buying and selling of accounts receivables has remained a viable answer to this problem.

Now that we understand the definition of factoring, I am still amazed how misunderstood this industry is perceived by the business community.

First and foremost, factoring is not a loan.

Before I explain, I can tell you that we receive tons of inquiries from prospects looking for a loan. Maybe it’s poor marketing on our end, but our local banks sure get a ton of SBA loan referrals from us. I think the easiest way to differentiate a loan from a factoring transaction is that banks make decisions based on business financial history, cash flow and collateral. Factoring decisions are based on the creditworthiness of our client’s customer. Most importantly, factors can get clients funded in days while banks generally take weeks or even months.

Factoring companies are not debt collectors of old invoices.

So often when I speak to a group of business owners, someone will raise their hand and ask if we can help them with invoices that are over six months past due. There are exceptions to the rule but generally factors don’t want to fund invoices that take over 90 days to pay. The first question any factor should ask would be why the account debtor is taking so long to pay. Secondly, the fees charged by the factor for invoices that take extended period of times to pay would be quite hefty.

These are just a few examples of how factoring invoices can be confused with other forms of financial services. I congratulate the folks here at Factoring Investor that educate buyers and sellers of invoices and everyone else in between.

Factoring Company Don DAmbrosioDon D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.

For more information, he can be reached at or you can visit his company’s website at

About Don DAmbrosio

Don D'Ambrosio assists companies with cash flow needs through invoice factoring services. You can connect with Don online through the Oxygen Funding website, LinkedIn or Google+


  1. Don- I agree with your definition but take exception that factoring is not a loan.
    Almost all of the “factoring”transactions I see include a guaranty of payment by the company “selling” the invoice, personal guaranties of principals and a lien on all the company assets that include those not at all related to the invoices. If the invoice is not paid the factor may foreclose on all property of the borrower. If the invoice were “sold” the only recourse would be to the debtor.
    My opinion is that better than 90% of the factoring transaction are really Secured Loans.
    If it looks like a duck Etc.

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