Factoring is a financial transaction where a company will sell its accounts receivable to a finance company. This finance company will specialize in purchasing receivables at a discounted rate, which is known as a factor. The factor will then collect the payment on the receivables from the customers of the company. 

Companies go for factoring if they want to receive money faster instead of waiting for their customers to pay. Through factoring, a company will be able to receive payments immediately, which will allow them to have a steady cash flow and pay all the outstanding obligations. 

When you go for factoring companies, these companies will charge you something called a factoring fee. The rate of the factoring fee will vary from company to company. Some of the factors that will include are- industry of the company, the receivables volume, creditworthiness, and quality of the customers of a company, and the number of days outstanding. 

Apart from this, there is recourse and non-recourse factoring. The charge for recourse factoring will be lesser; however, the charges for non-recourse factoring will be high. In simple language, if the factoring company analyses that it will be easier to collect the receivables, the cost of the factoring fee will be low. 

In some cases, what happens is that a company goes for invoice factoring, the finance company then pays depending on the case, the company who went for invoice factoring received the money without any problem, but when it came to collecting the receivables, some factoring companies may face some challenges. The customers that they thought have a good reputation and will pay their due end up delaying payment. This is when factoring collection comes into play, and fortunately, there are good factoring companies available who can collect factoring money from the customers.