---
title: Factoring Definition for Small Business
description: Online Factoring Definition for Business to Business sales.
image: https://www.fastarfunding.com/hs-fs/file-16061442-png/images/ff_phone_app_dark_blue_300.png
---

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## [Factoring Definition for Small Business](https://www.fastarfunding.com/blog-factoring/bid/57654/Factoring-Definition-for-Small-Business)

Posted by [matthew begley](https://www.fastarfunding.com/blog-factoring/author/matthew-begley) on Wed, Jun 22, 2011

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#### If you are a student looking for information on factoring as it relates to math this is not for you.  

#### This is article is written for the business owner who has heard the term before but doesn't have a real idea what invoice factoring for business is.

#### Wikipedia defines factoring as the following:

#### "Factoring is a financial transaction whereby a business job sells its accounts receivable (i.e.,invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness. Secondly, [factoring is not a loan](https://www.fastarfunding.com/blog-factoring/bid/89578/Unraveling-Myths-About-The-Factoring-Loan) – it is the purchase of a financial asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three."

#### Ok, now that we got that out of the way.  We can talk about how factoring can help in the real small business world.  As defined above factoring companies buy invoices from small business for cash the business can use today, instead of waiting for their customer to pay in 30,60 or 90 days.    

#### There are a few important things that everyone needs to know about factoring before they start.

1. #### A factor will require that your customers pay the factor directly when the invoice becomes due
2. #### In most circumstances your business, and you personally will be liable for the advances the factor made to your firm if the invoices aren't collectible
3. #### A factor will typically file a lien against your business to secure the advances they have made
4. #### You will pay a fee for the [factor service](https://www.fastarfunding.com/factoring-loans/) that usually tied to the time it takes your customers to pay.  The longer it takes, the more it costs
5. #### A Factoring company will typically advance you 80% of the value of your invoices
6. #### Factors will only finance business to business sales.  Sorry, consumer obligations probably wont qualify
7. #### Your invoices will have to be labeled as due and payable to the factor at the factoring companies address

#### This is only a basic description of factoring.  At [Fast A/R Funding](https://www.fastarfunding.com/) we are a little different.  We do everything online.  We don't use paper and we get things done.

#### For more information give us a call at the number above or click one of our fill out one of our "get more information" forms.  One of us will get back to you quickly.

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