Flash Trucks is a delivery company based in the UK. It has agreed to deliver
pieces of heavy machinery to a customer in January and will charge £10,000
for this service.
The customer agrees with Flash Trucks on a payment for the delivery delayed to
the following 31st of March.
The ‘factor’ (a factoring company) buys the right to collect the money that Flash
Trucks is owed. The factor legally owns the receivables and obtains all of the
rights associated with them. Almost immediately, the factor pays a certain
percentage of the total value of the product sold (typically no more than 90%)
to Flash Trucks. Let’s assume in this case the factor pays Flash Trucks 70% of the total
value (i.e. 70% of £10,000= £7000).
When the payment is due, the customer will pay the factor directly, and Flash
Trucks receives the remaining share of the value of the service provided
(e.g. the remaining 30% of £10,000, i.e. £3000).
Finally, Flash Trucks pays a fee to the factoring company for the service
provided (typically around 3% of the value of the sale, i.e. £300 in this example).
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