Borrowing for Your Small Business
A factor is a finance company or bank that buys customer receivables from a business—for a fee, of course—and then collects the balance due directly from the customers. Selling (or factoring) your customer receivables may result in a receipt of cash sooner than normal in the regular course of business. You may sell receivables either with or without recourse. If you sell a receivable without recourse, the purchaser assumes the risk and absorbs the credit loss if a customer defaults on payment. On the other hand, if you sell a receivable with recourse, you guarantee payment to the purchaser of the receivables if the customer does not pay.