Factoring companies specialise in the purchase of invoices from other businesses. A business will often sell its outstanding receivable accounts for a discount to other companies who will collect the outstanding amount.

The factoring companies directly purchase financial assets instead of giving loans on a credit worthiness basis. The company that sells its invoices thus receives an influx of capital instantly. The factoring company then accumulates the outstanding debts, thus making a profit from the payment charged to the original company.

For factoring to function correctly three parties are required: the factoring company that purchases the invoice and issues the loan, the company selling invoices and the firm from which factoring company collects the debts. The entire process enables a company to grow in tandem with their sales.

Once the enterprise makes a sale and has an invoice drafted, it can then sell those invoices to factoring companies to raise capital and re-invest in their business. In this case, the enterprise does not need to wait and collect money from their clients. This ultimately means that the company can move to their next client without the fear of meeting the requirements of clients.