> a factoring company: which buys unpaid invoices from freelancers for a fee or a percentage of the invoice-amount
Getting way off-topic here, but I’ve never heard of this. Is it like a bill-collector for freelancers? Who do the non-payers tend to be - is it companies who think they can stiff a freelancer, but who will pay up when someone with teeth comes knocking? Also, can anyone sell an invoice on to someone else to collect it, or does that possibility have to be written into the initial contract between the freelancer and the employer?
Not sure about freelancers specifically but factoring is normally used by small companies to reduce short term capital requirements, as most companies will only pay invoices after 30 days and some have payment terms of much longer eg 90 days. Anyone can factor an invoice and if it was issued by a large and credit worthy company then this is a cheap way to access secured credit.
More recently, see the development of reverse factoring, where the customer initiates financing for its purchases from its suppliers. It's dangerous, as you can imagine; if the customer can't pay for its invoices, instead of being indebted to a supplier, they are in default to their creditor. See Greensill, a $1.5bn-from-Softbank startup that is involved in several recent crises among its creditors in the UK (see https://www.ft.com/content/d5a5951f-bab8-4ea8-b0d7-2b70455c9..., and for a more indepth explanation of what reverse factoring is (with jokes also), see https://www.podbean.com/media/share/pb-iyz8z-e06e88)
Thanks, this makes sense. Do you have any idea what the factor’s cut is? It can’t be too much, because otherwise the freelancer would wait for direct payment - unless they are really tight for money - so my gut feeling is somewhere between 5% - 10%
These are debt collectors, you've definitely heard of them, and they're all super shady. This is just how it works.
A normal business, say your bank or you energy supplier or your software supplier, will try and recover a debt with some basic attempts. But then they'll bundle together all their debts and sell them to debt collectors for pennies on the pound.
Don't know why they're called a factoring company in Holland.
“Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount“
> "Don't know why they're called a factoring company in Holland."
To me it sounds like a bad translation. "Invoice" in Dutch is "factuur". "Facturering" is the process of sending an invoice. I have often encountered the word "factoring" as a supposedly-English translation of it.
Getting way off-topic here, but I’ve never heard of this. Is it like a bill-collector for freelancers? Who do the non-payers tend to be - is it companies who think they can stiff a freelancer, but who will pay up when someone with teeth comes knocking? Also, can anyone sell an invoice on to someone else to collect it, or does that possibility have to be written into the initial contract between the freelancer and the employer?