Factoring
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The exporter sells its unpaid invoices to a finance company, called a factor, and gets around 80% of the value up front.
Terms like this have a quick explainer. Tap or hover on them.
01 · In plain words
You sell your unpaid invoices to a factor and get around 80% of the money now
is a way to get paid early on your sales. You sell your unpaid invoices to a finance company at a . That company is called the factor (Global Supply Chain Finance Forum).
The factor pays you part of each invoice after it checks the invoice. This share is the . It is around 80% of the invoice value, says the Global Supply Chain Finance Forum, or GSCFF. When your buyer pays, the factor pays you the rest, minus its fees (GSCFF).
A factor can do more than pay early. FCI, the global factoring body, lists four services: protection if a buyer fails to pay, collecting the money, early payment, and keeping your , the record of who owes you what (FCI). Factoring is used at scale. FCI puts world factoring volume in 2025 at EUR 4.04 trillion (FCI Annual Review 2026).
There are two main kinds. In , the factor takes the risk that your buyer cannot pay on the invoices it covers. In , you keep that risk. It is non-recourse when the factor agrees to cover the buyer's risk of not paying. Without that cover, it is recourse (FCI).
Who is involved
- The seller, here the , sells its invoices.
- The factor buys the invoices, pays the seller and collects from the buyer (GSCFF).
- The buyer, here the , owes the invoice. The factoring agreement is between the seller and the factor. The buyer is told to pay the factor.
- In trade between two countries, the exporter's factor is the . It works with an in the buyer's country, which checks the buyer and collects locally (US ITA). This is the .
02 · How it works
Eight steps take the deal from the factoring agreement to the final payment
Figure 1 · Interactive
Export factoring, step by step
Read down the steps. The last step is where the exporter gets the rest of the money.
Source: US International Trade Administration, Trade Finance Guide, July 2022 (two-factor steps); Global Supply Chain Finance Forum, factoring (advance, notice and final payment).
03 · What it means for you
The exporter gets cash early. The importer pays later, and pays the factor.
Figure 2 · Interactive
What factoring means for each side
Choose your side of the trade.
04 · Worked example
On a $1 million invoice, illustrative factoring costs add up to $23,666.67
This example uses round, made-up numbers to show how the money moves. The factor pays 80% up front. It charges a service fee of 1.50% of the invoice. The factor also charges interest of 6.50% a year (a 4.00% base rate plus a 2.50% margin) on the $800,000 it pays early. It charges for 60 days and counts a year as 360 days. Real terms vary by factor, country and deal.
Figure 3 · Illustrative
Factoring a $1,000,000 invoice paid after 60 days
Illustrative inputs. The total cost is highlighted.
Made-up rates, worked out by our checking script. The exporter receives $976,333.33 in total. Your factor's terms will differ by factor, country and deal.
05 · When to use it
Factoring suits an established exporter selling regularly on short open account terms
Good fit when
- You sell regularly on open account with short terms, and you want cash before the buyer pays (US ITA).
- You want protection if a buyer fails to pay. Ask for non-recourse factoring (FCI).
- You want someone else to collect payments and keep your sales ledger (FCI).
Another tool may suit better when
- You are new to exporting, or this is a one-time sale. Factors generally do not take on a client for a one-time deal (US ITA). Look at a letter of credit (sight).
- Your buyer pays in more than 180 days. Factoring generally does not work with those terms (US ITA). Compare forfaiting.
- You only want cover against a buyer failing to pay, with no early cash. Look at trade credit insurance.
06 · Rules and a real case
Cross-border factoring follows FCI rules and a 1988 treaty, and development banks fund factors
FCI's are the rules for factors in FCI's two-factor system. FCI calls them the framework for cross-border factoring (FCI). The , signed in Ottawa on May 28, 1988, covers factoring where the supplier and the buyer are in different countries. Under it, the factor must do at least two of four jobs: finance, keeping the accounts, collection, and protection if the buyer fails to pay (UNIDROIT).
A real case. On December 13, 2016, the European Bank for Reconstruction and Development (EBRD) gave a credit line of 50 million Turkish lira to TAM Faktoring, a factoring company in Turkey. The aim was to expand finance for micro, small and medium-sized businesses there. The EBRD describes factoring as a business selling its invoices to a finance company, the factor (EBRD press release).
Summary
Factoring turns your unpaid invoices into cash now, with the option to hand over the buyer's credit risk
The exporter sells its invoices to a factor and gets around 80% up front. The rest comes when the buyer pays, minus fees. With non-recourse factoring, the factor also takes the risk that the buyer cannot pay. The buyer pays later, on open account, and pays the factor named on the invoice.
Related guides: Factoring vs invoice discounting; Receivables finance; Open account trade. Related cards: Invoice discounting; Open account; Trade credit insurance. Every term is in the Trade Finance Glossary.
Sources
- Global Supply Chain Finance Forum, Factoring (Standard Definitions for Techniques of Supply Chain Finance), October 31, 2024. Supports: definition, parties, notice of assignment, the advance of around 80%, final payment, recourse and non-recourse
- US International Trade Administration, Trade Finance Guide: A Quick Reference for US Exporters (2022 edition), export factoring, July 2022. Supports: the two-factor steps, the 80 percent advance limit, 180-day terms, collection cost of 1 to 4 percent, when it fits
- FCI, What is factoring?, undated. Supports: the four factoring services, credit cover and recourse, how the fee is made up
- FCI, FCI Annual Review 2026, 2026. Supports: world factoring volume in 2025
- FCI, Contract and rules, the key elements for correct factoring and supply chain finance transactions, August 2, 2022. Supports: GRIF as the framework for cross-border factoring
- UNIDROIT, UNIDROIT Convention on International Factoring (Ottawa, 28 May 1988), May 28, 1988. Supports: the four functions and cross-border scope
- European Bank for Reconstruction and Development, EBRD loan to TAM Faktoring boosts finance options for Turkish businesses, December 13, 2016. Supports: the real case
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