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Debt factoring is a common business practice that is used to free up capital and improve cash flow. It involves selling invoices to a third party, usually a debt factoring company, in return for being able to obtain a loan of equal size to the invoice amount, minus a charge. Debt factoring does not count against your company as would a standard loan or debt. When the buyer pays the invoice, the debt factoring is no longer needed. This can be of great help to certain businesses, with cash available both to run the business and also fund further orders. If your business operates overseas export factoring can provide a number of advantages in freeing up capital for your business.
There are many advantages, and also a number of disadvantages to debt factoring. Disadvantages include the cost involved, even if it may be relatively small, as well as not being able to use the factored money for borrowing security. If a poor debt factoring company is chosen, there is also the risk of them dealing badly with your customers.