Invoice factoring also called accounts receivable factoring or debt factoring) is a type of financial service in which a company sells some or all of its outstanding invoices to a third party who pays them (minus a fee for their services) and then collects payment from the customers as the invoices fall due. It is a method that companies use to improve their cash flow and ensure that they have sufficient revenue to continue conducting their business.
A company typically uses factoring services when they have a large number of invoices outstanding which are yet to be paid and are affecting cash flow which is required, for example, to pay its staff or suppliers. Factoring provides this outstanding cash immediately and is often used to pay business expenses, repay loans, take advantage of seasonal business variations or any other reason where a lack of cash flow is affecting the business.