Factoring is among the oldest forms of banking, but it doesn't work the same way as an ordinary loan. Instead of advancing cash to a business on a pledge that it will repay the bank down the road, the factor actually buys the legal right to collect a company's outstanding invoices. The factor gets its money when the invoices are paid. The business gets its money now, minus a factoring fee which is a small % of the amount due.
Factoring now accounts for more than $1 trillion a year in credit, triple what it was in the early 1990s.
What has made factoring even more attractive of late to many smaller-size businesses has been the growing popularity of "cash management" by big companies. In real life that means small companies that sell to big companies can expect to be paid very slowly. In such scenarios, banks usually won't extend a loan to small companies, because they typically expect a whole lot more collateral to back up a loan than just a contract with a large company you sell to.
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