A type of factoring in which the factor pays the client for its “non-due/ uncollected” accounts receivable (A/Rs), offered for sale, prior to the date on which payment would contractually become payable and would be made. Under advance factoring arrangement, the factor pays the “price” of accounts receivable to the client in advance.
However, in practice only a specific percentage of the receivables is paid in advance, not the entire amount.In other words, under such a factoring agreement, the factor holds back a certain amount (the held-back amount), while agreeing to pay remaining percentage. The held back amount is a margin that ranges from 5% to 25%. It will not be paid to the client until all the debt has been collected from the customers.
Advance factoring can be with or without recourse (recourse advance factoring, non-recourse advance factoring).
This type of factoring is also referred to as a financing factoring.
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