The Seller tenders one or more invoices to the factor to obtain cash. The Seller essentially transfers ownership of the receivables to the factor. Accordingly, the factor obtains the right to receive the payments made by the debtor.
The debtor is notified of the factoring arrangement and the factor makes all collections. Cash is paid by the factor to the seller (pre-payment) upon submission of the invoice. The funds-in-use account is adjusted against the payment made to the factor by the debtor