What is factoring?

One of the most common problems in business is lack of cash flow. You sell goods or services to a customer, but the payment is made 30, 60, or even 90 days later. Meanwhile, you need money to pay salaries, taxes, buy raw materials, start new orders, etc. So how can you get that money quickly?

Solution: Factoring

What is factoring?
Factoring is the process of selling your company’s receivables (accounts receivable) to a third party—a factoring company—in exchange for most of the amount in cash upfront.

In simple terms:
Your customer will pay in 60 days.
You work with a factoring company and receive 70–90% of that amount today.
When the customer pays, the factoring company gives you the rest (minus their fee).

How does factoring work? (An example)
You sell goods worth 100,000 AZN. The customer agrees to pay in 60 days.
You present the sales document to the factoring company.
They check the documents and transfer 85,000 AZN to you immediately.
When the customer pays 100,000 AZN, the factoring company deducts its fee and gives you the remaining balance.
Result: You don’t wait 60 days, your business continues uninterrupted.

Advantages of factoring
✅ Ensures cash flow — your business keeps running smoothly
✅ No collateral needed — unlike traditional loans
✅ Doesn’t affect credit history — not a loan, but based on sales
✅ Supports business growth — cash comes faster, so you can accept new orders
✅ Shares the risk — in some cases, the factoring company assumes payment risk

Who benefits from factoring?
Ideal for companies that:
– Offer deferred payment terms to clients
– Participate in government tenders and procurements
– Operate in wholesale or heavy industry
– Export goods and get paid later
– Provide services with delayed payments (construction, logistics, transportation, etc.)

Types of factoring

1. Recourse factoring – If the client doesn’t pay, you reimburse the factoring company

2. Non-recourse factoring – Payment risk is borne by the factoring company

3. Disclosed factoring – Your customer knows you’re using a factoring company

4. Undisclosed factoring – Customer is unaware; the process is managed in your name

What should you know?
– Factoring is not a loan, but a financing tool based on invoices
– Your documents must be complete and accurate
– Factoring companies check your client's reliability
– You get 70–90% of the receivable upfront
– Commissions vary depending on payment terms and risk
– Must be managed properly from tax and accounting perspectives

How to use factoring in Azerbaijan?
Factoring is still developing in Azerbaijan but growing quickly. If you:
– Face cash flow problems
– Offer long payment terms
– Participate in tenders or export goods
Then factoring can be very helpful.

But your legal and financial documentation must be accurate. Mistakes can block factoring or increase risks.

Conclusion
Factoring is a simple, low-risk, fast financial tool.
If you want to get paid faster, grow your business, and avoid loans — factoring may be ideal.
To start factoring, consult experienced accountants, tax advisors, and legal professionals.