Factoring (Invoice Factoring)

Factoring is a financing mechanism through which a company assigns its outstanding invoices to a financial institution (the factor), which advances the money before the due date. In exchange, the factor charges a fee and a discount rate, and then takes care of collecting those invoices from the customers who owe them. In practice, it means turning credit sales into immediate cash without taking out a traditional loan.

The key to factoring is that the asset backing the transaction is the invoice itself, not the company's net worth. That is why it is often an accessible financing route for SMBs and suppliers that sell to large buyers on 30, 60 or 90-day payment terms but need working capital now to keep operating.

Financing invoices becomes simpler when the commercial cycle is organized and traceable: sales recorded, customers identified and due dates up to date. That foundation of clean commercial data and well-managed customer relationships is part of what marketing and commercial automation platforms like Revio help sustain.

Factoring solves a classic problem for companies in Latin America: you sell well, but you get paid late. When a company invoices on 30, 60 or 90-day terms, that money is trapped in accounts receivable while costs (salaries, suppliers, taxes) keep coming due every month. Factoring unlocks that capital by letting the company sell its invoices to a third party that advances the cash, typically between 70% and 95% of face value, minus its fee and the rate for the financing period.

How it works, step by step

1. The company sells products or services and issues an invoice to its customer with payment terms.
2. Instead of waiting for the due date, it assigns that invoice to the factor (a bank, fintech or factoring company).
3. The factor assesses the risk, mainly the creditworthiness of the customer who has to pay, and advances the money.
4. On the due date, the factor collects the full invoice from the debtor and the transaction closes.

A central question is who bears the risk of non-payment, and that gives rise to the two main types.

Recourse vs. non-recourse factoring

In recourse factoring, if the end customer does not pay, the company that assigned the invoice must return the advance: the factor only provides liquidity. In non-recourse factoring, the factor actually buys the credit risk, so it charges more, but the company is freed from collection. The choice depends on how much it is worth to offload the risk and on the credit quality of the customer portfolio.

Why it matters for an Argentine SMB

In environments with high inflation and volatile interest rates, getting paid now instead of in 90 days protects the purchasing power of working capital. A Consumer Goods supplier that sells to a supermarket chain on 60-day terms can use factoring to keep production running while it waits: instead of drawing on an expensive bank overdraft, it monetizes invoices it already holds. Tools such as credit scoring help the factor decide quickly whether to finance that portfolio.

Common mistakes when using factoring

• Looking only at the nominal rate: you need to add fees and expenses to see the true all-in financing cost.
• Overusing recourse factoring: with risky customers, the advance becomes a dangerous contingent liability.
• Not having documentation in order: invoices with errors or without customer acknowledgment get rejected or discounted at a higher cost.

How it differs from other instruments

Factoring is often confused with confirming (reverse factoring) and with check discounting, but they are different: factoring is initiated by the seller to get paid sooner, while confirming is initiated by the buyer so its suppliers can be paid early. Document discounting works on checks or promissory notes, not commercial invoices. In every case the foundation is the same: a properly issued electronic invoice and a tidy collections process that makes those receivables financeable.