Clear DefinitionsInvoice Factoring
1 min read
Pronunciation
[in-vois fak-ter-ing]
Analogy
Like selling your concert tickets at a slight discount to a ticket broker for instant cash instead of waiting for full price later.
Definition
A financial service where a company sells its accounts receivable (invoices) to a factor at a discount in exchange for immediate cash, shifting credit risk and collection efforts to the factor.
Key Points Intro
Invoice factoring accelerates cash flow by monetizing pending invoices through third‑party purchase.
Key Points
Advance rate: Percentage of invoice value advanced (e.g., 80%).
Discount fee: Factor’s charge for service (factor rate).
Recourse vs non‑recourse: Determines who bears bad‑debt risk.
Collection management: Factor handles debtor payments.
Example
A supplier factors $100 K of invoices at an 80% advance and 2% fee, receiving $80 K upfront and the remainder minus fees upon collection.
Technical Deep Dive
Smart contract platform tokenizes invoices as ERC‑721 assets. Factor contract escrows tokens, advances ERC‑20 stablecoins. Upon payment, invoice NFT is redeemed and funds settled, with on‑chain proof of payment.
Security Warning
Non‑recourse factoring shifts default risk to factor; verify debtor creditworthiness.
Caveat
Discount fees reduce margins; weigh cost vs liquidity needs.
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