As a new student at the IACFB Academy, you’re stepping into the world of commercial finance, where brokers play a vital role in helping businesses achieve their goals. Among the many financial tools available, factoring stands out as one of the “CORE” products brokers represent. Its accessibility and versatility make it indispensable for solving cash flow challenges, and it also presents incredible opportunities for brokers to earn ongoing, residual income.

This introduction to factoring will give you an overview of its importance as a financial service, the problems it solves for businesses, and why it’s one of the most attractive offerings in a broker’s portfolio.

What is Factoring?

Factoring, also known as accounts receivable financing, is a financial transaction where businesses sell their unpaid invoices to a factoring company (also called a “factor”) at a discount. Instead of waiting 30, 60, or 90 days for their customers to pay, businesses receive immediate cash from the factoring company. The factor then takes over the collection of the invoice from the customer.

This straightforward process provides businesses with the liquidity they need to meet operational expenses, seize growth opportunities, and avoid the stress of late payments. Factoring is particularly popular among small and medium-sized businesses (SMEs) in industries like manufacturing, staffing, construction, and transportation—industries that often face extended payment terms.

Why Factoring is a Core Product for Brokers

For brokers, factoring is a cornerstone of their product lineup because of its simplicity and universal appeal. Unlike other financing options that require strict qualifications or collateral, factoring is easier to access. A business doesn’t need a perfect credit score or years of operational history to qualify; instead, the focus is on the creditworthiness of the business’s customers (the ones paying the invoices).

This accessibility allows brokers to serve a wide range of clients, from startups to established companies. Factoring solves a myriad of challenges:

• Cash Flow Problems: Businesses can meet payroll, purchase inventory, or cover overhead without worrying about delayed payments.
• Growth Opportunities: With immediate cash in hand, companies can take on larger contracts or expand operations without waiting for receivables to come in.
• Seasonal Businesses: Industries with fluctuating cash flow can maintain stability year-round through factoring.

For brokers, representing factoring allows them to position themselves as problem solvers and trusted advisors. This not only builds credibility but also opens doors to lasting client relationships.