Factoring is a product designed to support your clients sales on open account terms. Most sellers and SMEs prefer either cash up front or willing to sell against a letter of credit from the buyer’s bank. However, most larger buyers/retailers prefer to purchase on open account terms of sale. This is important, as if your client is not able to offer open account terms, they may lose the sale opportunity to a competitor who is able and willing to offer open account terms to the buyer. Once the terms are agreed and the receivable is created on your client’s balance sheet, the client normally has to wait for payment of the invoice by the buyer, depending on the terms of sale. Hence, the receivable ends up becoming a dormant asset on their balance sheet, as the seller is unable to convert it to cash. However, with the availability of factoring, you can now provide cash in exchange for the purchase of the receivable, and offer as well credit protection against the potential default of that buyer(s). Hence, factoring has similar characteristics to letters of credit, but has the extra advantage of allowing your clients to ship on open account terms and obtain credit protection, collection service and liquidity in all one service.