Full-service factoring is a factoring arrangement that bundles financing with receivables management. Besides advancing cash, the factor checks customer credit, keeps the sales ledger, sends statements and collects payments.
How it works in factoring
Under a full-service setup, the seller's role after delivering and invoicing is largely to submit documents. The factor typically:
- Runs credit checks on new and existing customers and sets credit limits
- Records each invoice and applies incoming payments
- Sends reminders and handles routine collection calls
- Produces aging reports and account statements
- In non-recourse versions, absorbs credit losses on approved customers
This model is usually a notification arrangement, because the factor contacts customers directly and payments go to the factor.
For a small business without a dedicated credit and collections staff, outsourcing these tasks can be a real benefit. It also gives the factor more control over the collateral, which can support better advance terms.
What to check
- How the factor communicates with your customers, and whether you can set the tone or escalation limits
- Who decides when an account goes to a collection agency or legal action
- What reporting you get, and how often
- Whether collection services cost extra or are built into the fee
Customer relationships are worth protecting. Ask to see the factor's standard reminder letters and call procedures before signing, and agree on how disputes will be routed back to you.