You invoice at ninety days and your suppliers want paying at thirty. Factoring bridges that gap by advancing the amount of your invoices against a commission and interest — and the only question that matters is whether that cost is lower than what waiting already costs you.
The essentials in five points
- You assign your receivables to a factor who advances part of them immediately.
- The cost has two components: a service commission and a financing cost over the period advanced.
- With or without recourse changes everything: it determines who bears the bad debt.
- The quality of your customers is the real criterion, not yours: they are the ones being assessed.
- It does not replace invoicing promptly: financing a delay you cause is the most expensive remedy there is.
1. How it works
The principle is simple and involves three parties. What varies from one contract to another is the proportions and, above all, who keeps the risk.
- You deliver to your customer and issue the invoice as normal.
- You assign that receivable to the factor, with the documents supporting it.
- The factor advances part of the amount, holding back a retention.
- Your customer pays, under the contract, either the factor or you.
- The factor pays you the balance, less its commission and interest.
The third line deserves attention: the advance never covers the full amount. A retention covers disputes, credit notes and possible bad debts, and only comes back to you at settlement. Your cash requirement has to allow for that unadvanced portion.
2. With or without recourse
This is the clause that determines what the transaction really is, and the price difference between two offers almost always comes from it.
| With recourse | Without recourse | |
|---|---|---|
| Who bears the bad debt | You: the factor comes back to you | The factor, within the contract’s limits |
| What it really is | Financing secured on your receivables | A transfer of risk on top of the financing |
| Cost | Lower | Higher; the guarantee is paid for |
| Effect on your balance sheet | The receivable remains largely your affair | The transfer can be cleaner, depending on the contract |
| What to read | The recourse conditions and their time limit | The exclusions, per-debtor limits and uncovered cases |
The last line is the one people skip and the one that decides. A “without recourse” contract carries exclusions, per-debtor limits and uncovered situations — a commercial dispute, for instance, often falls outside the guarantee. Without reading them, you pay for security without knowing its extent.
3. Calculating the real cost
A commission of a few per cent looks modest. As with settlement discounts, only the annualised cost allows a comparison.
- Add the service commission and the financing cost over the period actually advanced.
- Relate that total to the amount actually made available to you, not the amount invoiced.
- Annualise over the days gained against your current collection delay.
- Compare with the cost of your overdraft or short-term credit.
- Add the fixed fees and minimum charges, which weigh heavily on small volumes.
The fifth line rules factoring out for many very small businesses. An annual minimum commission, set against a modest volume of invoices, produces an effective rate bearing no relation to the percentage shown in the contract.
The factor assesses your customers, not you
This is the reversal many owners do not see coming. You present your business, but the risk being financed is your debtors’: they are the ones rated, capped, sometimes refused. An important but fragile customer can be excluded from the facility, and that is precisely the receivable you wanted financed. Check the per-debtor limits before signing, not after the first refusal.
4. When it is justified, and when it is not
Factoring solves one particular problem. Used to solve another, it becomes the most expensive financing on your balance sheet.
- Justified: growth that consumes cash: Sales are rising, working capital follows, and cash has not caught up yet. This is the clean use case.
- Justified: solid customers who pay late: Large companies or public bodies, long terms but low risk. The factor assesses your customers favourably, so the price is good.
- Unjustified: an invoicing problem: If the delay comes from you — invoices issued late, documents missing — you are paying a third party to finance your own slowness.
- Unjustified: risky customers: The factor will exclude them or price them heavily. Factoring does not turn a doubtful receivable into cash.
The third line is the most frequent and most expensive misuse. Before financing a delay, measure it: the part coming from your own invoicing cycle is corrected for free, as noted in invoices to be issued.
Mistakes to avoid
- Comparing the headline commission to the invoice amount rather than the annualised cost.
- Forgetting the retention when calculating the cash requirement.
- Signing a “without recourse” contract without reading the exclusions.
- Ignoring fixed fees and minimums on small volumes.
- Financing a delay caused by your own invoicing.
- Assuming doubtful receivables will be accepted.
Frequently asked questions
How does factoring work?
You assign your customer receivables to a factor who advances part of them immediately, holds a retention, collects the payment and then pays you the balance after commission and interest.
What is the difference between with and without recourse?
With recourse, the bad debt comes back to you: it is financing secured on your receivables. Without recourse, the factor bears the risk within the contract’s limits, and that guarantee is paid for. The exclusions determine what “without recourse” is actually worth.
How do I know whether it pays?
Annualise the total cost over the days genuinely gained and compare it with your overdraft. Add the fixed fees and minimums, which can make it very expensive on small volumes.
Can every invoice be financed?
No. The factor assesses your debtors and sets per-customer limits; some are excluded. Disputed or already doubtful receivables are not something to finance.
Does BelloPOS help with factoring?
Indirectly: it provides the history of sales and payments from the free Lite licence onward, and customer credit tracking from Go, which lets you measure your real delays before deciding whether to finance them.
What to take away
Factoring is financing, to be compared with other financing rather than with the size of your invoices. Annualise its cost, read the exclusions in a without-recourse contract, allow for the retention and the minimums. And above all, check that the delay you are about to finance is not coming from your own invoicing.
Sources
The figures and rules quoted above come from these pages, read on the date given in the article.
- Moroccan Tax Administration, 2026 General Tax Code
- Ministry of Economy and Finance, General Code of Accounting Standardisation, read 1 September 2026
Measure the delay before financing it
BelloPOS records sales and payments with their dates from the free Lite licence onward, and customer credit tracking from Go: enough to know what you would actually be financing.
Read next
Other practical guides on the same subject: