Factoring is selling / assigning the interest in your receivables or invoices to a financial institution at a small discount. This service goes by many names including: invoice factoring; receivables factoring and/or invoice discounting (which is actually slightly different from factoring).
The industry, although largely unknown, is quite large (over £ billion of turnover was factored last year) and is an old financial service that has long been used by multi-billion pound corporations and has more recently been made available to small and medium sized businesses.
Factoring allows many SMEs to take advantage of their largest asset, namely their outstanding invoices, to help obtain financing. Many new and growing companies have trouble obtaining traditional bank financing due to the length of time in business, profitability or financial strength. But by factoring, they are able to raise cash from approved invoices in as little as 24 hours. Other types of financing generally require two years in business and a profit.