Understanding factoring and receivables financing, explained clearly.
Crefo-Factoring Nord GmbH is an information resource that helps business owners and finance teams understand how factoring works, what receivables financing involves, and how these tools are typically used to support cash flow.
What is factoring, in plain terms?
Factoring is a financing arrangement where a business sells its outstanding invoices to a third party, known as a factor, instead of waiting for customers to pay on their usual payment terms. In exchange, the business typically receives a large portion of the invoice value upfront, with the remainder settled once the customer pays, minus a service fee.
Receivables financing is a closely related concept: it covers a broader range of arrangements where unpaid invoices or receivables are used as the basis for short-term funding, whether through outright sale, assignment, or as collateral.
- Helps convert unpaid invoices into more predictable cash flow
- Can reduce the administrative burden of chasing payments
- Often considered alongside traditional business loans and credit lines
How a typical factoring arrangement works
The exact process can vary between providers and contract types, but most factoring arrangements broadly follow the same four stages.
Invoice issued
A business delivers goods or services to its customer and issues an invoice with agreed payment terms.
Invoice assigned
The invoice is sold or assigned to a factoring provider, who reviews it and the customer's credit standing.
Advance paid
An advance, commonly a majority of the invoice value, is paid to the business shortly after assignment.
Balance settled
Once the customer pays the invoice, the remaining balance is released, less any agreed service fee.
Areas of factoring and receivables financing we explain
Our content is organised around the questions business owners ask most often when researching invoice-based financing.
Invoice factoring
An overview of how single or ongoing invoice sales arrangements are generally structured, including recourse and non-recourse variants.
Credit risk & non-recourse models
How some arrangements shift the risk of customer non-payment to the factoring provider, and what that can mean in practice.
Export & international receivables
Considerations that typically arise when receivables involve customers in other countries and currencies.
Supply chain & logistics financing
How receivables financing concepts are often discussed in the context of freight, distribution, and logistics businesses.
SME cash flow management
General information on how small and medium-sized businesses commonly evaluate financing tools against their working capital needs.
Contracts & terminology
Plain-language explanations of common terms used in factoring agreements, so you can approach conversations with providers informed.
Industries commonly exploring receivables financing
Independent, educational content maintained by our team
Our editorial team follows public developments in trade finance and receivables financing to keep this resource current and easy to understand. We do not act as a broker, lender, or factoring provider through this website.
If you are researching financing options for your business, we encourage you to speak with a licensed financial advisor or a regulated provider directly. We are happy to point you toward general resources if you contact us.
More about our team
Common questions about factoring
Is factoring the same as a business loan?
No. A traditional loan creates a debt obligation repaid over time with interest, while factoring involves selling an existing asset, the invoice, generally at a discount. Both are financing tools, but they work differently and have different implications for a company's balance sheet.
Does my customer know their invoice has been factored?
This depends on the type of arrangement. In disclosed factoring, customers are typically notified and instructed to pay the factoring provider directly. In confidential arrangements, the customer may be unaware, and payments are usually still collected through the original business.
What does "recourse" and "non-recourse" mean?
In recourse factoring, the business remains responsible if a customer fails to pay. In non-recourse factoring, the factoring provider generally absorbs that credit risk, though usually only for reasons such as insolvency, and specific exclusions still apply.
How is the cost of factoring typically structured?
Costs vary widely between providers and are usually made up of a service fee and, in some arrangements, an additional financing charge on the advanced amount. Exact figures depend on invoice volume, customer risk, and contract terms, so they are always best confirmed directly with a provider.
Can this website arrange factoring for my business?
No. Crefo-Factoring Nord GmbH publishes general information only and does not offer, sell, or broker any paid financial product or service through this website.