1. Invoice Submission: The business provides goods or services to its customers and issues invoices as usual.
2. Factoring Agreement: The business enters into an agreement with a factoring company to sell its unpaid invoices.
3. Advance Funding: The factoring company provides an upfront cash advance to the business, typically a significant percentage of the invoice amount (e.g., 70-90%).
4. Credit Control Retained: Unlike traditional factoring, the business retains responsibility for credit control and continues to manage the relationship with its customers.
5. Customer Payment: The business collects payments from its customers based on the usual credit terms mentioned in the invoices.
6. Remaining Balance and Fee Settlement: Once the customer pays the invoice, the factoring company releases the remaining balance to the business, minus a fee. The fee covers the cost of financing and factoring services but does not include credit control.