Factoring Factoring is the preferred method of working capital financing for companies that cannot afford to have cash tied up in receivables for more than 30 days. Factoring is typically used when a company cannot qualify for a more traditional type of financing as in the case of start ups, turn-a-rounds, and companies with little net worth. Because factoring is based on the strength of the receivables rather than the company, it is ideal in these situations. Factoring eliminates the time and expense of collecting receivables. Factoring differs from traditional accounts receivable financing in that the lender (factor) actually purchases the invoices directly from the company on either a recourse or non-recourse basis. After the sale, the receivables, balances are carried on the factor's balance sheet since title has passed. Because the factor then owns the receivables, it generally provides all the required credit, collection, and accounting services necessary to collect the receivables. The important difference between factoring and traditional accounts receivable financing is ownership. In factoring, the receivables are purchased and owned by the factor. In a traditional accounts receivable lending arrangements, accounts receivable are pledged to the lender as security for the loan, but the borrower retains ownership and complete control of the receivables and the value of the receivables remains on the borrower's financial statement.