Not sure about freelancers specifically but factoring is normally used by small companies to reduce short term capital requirements, as most companies will only pay invoices after 30 days and some have payment terms of much longer eg 90 days. Anyone can factor an invoice and if it was issued by a large and credit worthy company then this is a cheap way to access secured credit.
More recently, see the development of reverse factoring, where the customer initiates financing for its purchases from its suppliers. It's dangerous, as you can imagine; if the customer can't pay for its invoices, instead of being indebted to a supplier, they are in default to their creditor. See Greensill, a $1.5bn-from-Softbank startup that is involved in several recent crises among its creditors in the UK (see https://www.ft.com/content/d5a5951f-bab8-4ea8-b0d7-2b70455c9..., and for a more indepth explanation of what reverse factoring is (with jokes also), see https://www.podbean.com/media/share/pb-iyz8z-e06e88)
Thanks, this makes sense. Do you have any idea what the factor’s cut is? It can’t be too much, because otherwise the freelancer would wait for direct payment - unless they are really tight for money - so my gut feeling is somewhere between 5% - 10%
