A factoring broker is an intermediary who connects businesses that want to sell their invoices with factoring companies. Factoring brokers do not fund invoices themselves; they help find a factor and help the business through the application.
How it works in factoring
A factoring broker typically:
- Learns about the business, its customers, industry and funding needs
- Introduces the business to one or more factors
- Helps gather documents and present the application
- Stays in touch during the relationship in some cases
Compensation usually comes from the factor rather than the business, often as a share of the fees the factor earns from the client over time. That arrangement means the business may not see the commission directly, though it is generally reflected in the factor's pricing.
This term should not be confused with a freight broker, a separate role in transportation that arranges loads between shippers and motor carriers. Freight brokers can be factoring clients or account debtors, but they are not factoring intermediaries.
What to check
- Ask how the intermediary is paid and by whom
- Ask which factors they work with, and whether they are limited to a few
- Make sure any fees charged directly to you are disclosed in writing before you sign anything
- Read the factoring agreement yourself; the factor, not the intermediary, sets the binding terms
A capable intermediary can save time, especially for unusual industries. The final decision and contract are still between your business and the factor.