Factoring, or invoice factoring, is a form of financing in which a company assigns its receivables to an entity, called a factor, which advances it today a large part of their amount in exchange for a discount. It is called factoring in Spain, Chile, Peru and Colombia, and factoraje in Mexico. The company turns sales on credit into immediate liquidity.
How factoring works step by step
The mechanism is the same in almost all markets:
- Credit sale. The company delivers the goods or service and issues an invoice payable in 30, 60 or 90 days.
- Assignment of the invoice. The company assigns the right to collect to the factor and, normally, the customer (the debtor) is notified that it must pay the factor at maturity.
- Advance. The factor delivers a percentage of the invoice amount, which in Mexico is usually called aforo, and retains the rest as a safety margin.
- Collection and settlement. At maturity, the customer pays the factor, which returns the remaining amount to the company, after deducting interest and fees.
The cost has two parts: the discount rate, which pays for the days of advance, and the analysis and collection management fees. What matters for the issuer is that this cost depends above all on the credit quality of its customer, not its own: an SME that sells to a large chain or to the public administration can obtain better financing than with a loan in its own name.
Factoring with and without recourse
The decisive difference is who absorbs the debtor's default.
| Aspect | With recourse | Without recourse |
|---|---|---|
| If the customer does not pay | The company returns the advance to the factor | The factor assumes the debtor's insolvency |
| Relative cost | Lower | Higher, because the factor charges for the risk |
| Upfront analysis | The company and the debtor are reviewed | The debtor is scrutinized |
| Accounting treatment | The receivable usually stays on the balance sheet and the advance is treated as debt | It may allow the receivable to be derecognized, depending on the applicable accounting standard |
A nuance that is often overlooked: non-recourse factoring covers the customer's insolvency, not commercial disputes. If the customer refuses to pay because the goods arrived defective, the risk goes back to the company.
Factoring in Peru: the negotiable invoice
In Peru, much of factoring revolves around the negotiable invoice. Ley 29623, of December 2010, turned a copy of the commercial invoice into a negotiable instrument transferable by endorsement or, if represented by book-entry, registered with a securities clearing and settlement institution (in practice, CAVALI). The customer has eight business days to accept or challenge it; if they do not respond, their acceptance is presumed (art. 7). The SBS regulates factoring and discounting and keeps a register of factoring companies not covered by the Ley General del sistema financiero (Resolución SBS 4358-2015). More in the guide to asset tokenization in Peru.
Factoring in Chile: assignment of the electronic invoice
In Chile, Ley 19.983, of 2004, grants the invoice copy enforceable status and regulates its transfer. The electronic invoice is assigned through the Registro Público Electrónico de Transferencia de Créditos of the Servicio de Impuestos Internos (SII), and that registration serves as notification to the debtor. The buyer has a short period, eight calendar days from receipt, to dispute the content of the invoice; after that period, it is deemed accepted. More in the guide to asset tokenization in Chile.
Factoring in Colombia: the electronic invoice as a negotiable instrument
In Colombia, the sales invoice has been a negotiable instrument since Ley 1231 de 2008, which amended article 772 of the Código de Comercio. For the electronic invoice to circulate as a negotiable instrument, it must be registered in RADIAN, the DIAN registry that records its acceptance and its circulation by endorsement (Decreto 1154 de 2020). The same decree defines the factor as the legal entity that provides receivables purchase services at a discount. More in the guide to asset tokenization in Colombia.
Factoring in Mexico: financial factoring and productive chains
In Mexico, financial factoring is regulated in the Ley General de Títulos y Operaciones de Crédito (arts. 419 to 431). The law provides for the two forms: that the assignor of the credit rights is not liable for their payment, or that it is jointly and severally liable with the debtor (art. 419). In supplier factoring, the version organized by the buyer, the best-known example is the Cadenas Productivas program of Nacional Financiera (Nafin), the development bank, which connects large public and private buyers with their suppliers and financial intermediaries. More in the guide to asset tokenization in Mexico.
Factoring and confirming in Spain
In Spain, factoring is provided by banks and credit financial institutions; Ley 5/2015 expressly includes “factoring”, with or without recourse, among the activities of the latter (art. 6.1.b). Legally, it is an assignment of receivables. Alongside it is confirming, or reverse factoring, which is organized by the buyer: the large company confirms its suppliers' invoices and they can collect them in advance with the entity managing the program, at a cost calculated on the buyer's risk and not on the supplier's. A context fact: between companies, the agreed payment term cannot exceed 60 calendar days (art. 4.3 of Ley 3/2004), which limits the maturities that are financed.
Tokenizing invoices and receivables: when it is a financial instrument
Factoring is a bilateral relationship: one company, one factor, one assignment contract. Tokenizing is something else: representing receivables on a distributed ledger to fractionalize them among several investors. Before the technology comes the legal question.
A bilateral assignment of invoices to a financier remains, in essence, an assignment of receivables. When receivables are pooled into a portfolio, standardized and split into transferable tokens offered to a plurality of investors, the structure approaches a transferable security, with a logic similar to that of a securitization. At that point the MiFID II regime comes in: issuance documentation, prospectus or exemption, and marketing through authorized entities.
In the European Union, ESMA's guidelines on when a crypto-asset is a financial instrument have applied since 18 May 2025 and look at economic substance, not the label. If the token is a financial instrument, it falls outside MiCA, which excludes those instruments in its article 2.4. In Spain, those securities can be represented on distributed ledgers under article 8 of Ley 6/2023, developed by Real Decreto 814/2023, with an ERIR that keeps the registry.
In practice, few companies tokenize invoice by invoice. The usual approach is to structure a debt instrument backed by the cash flows, such as a tokenized promissory note for short-term needs. The fact that electronic invoices are already assigned with centralized registration in Peru, Chile or Colombia makes factoring easier, but it does not turn the invoice into a security suitable for offering to European investors: that requires an issuance.
| Aspect | Traditional factoring | Tokenized receivables |
|---|---|---|
| Counterparty | A factor | Several investors |
| Legal nature | Assignment of receivables | It can be a security token if structured as a transferable security |
| Requirements | Contract and debtor analysis | Issuance documentation, prospectus or exemption, registration |
| Implementation | Days | Weeks or months |
| Makes sense for | Recurring short-term liquidity | Large, recurring portfolios with quality debtors, or issuers seeking to diversify funding sources |
How to decide
If you need one-off liquidity on a few invoices, conventional factoring is faster and simpler. Tokenization starts to pay off when the portfolio is large and repetitive, when you want to add investors other than your bank or your factor, and when you accept the regulatory work of an issuance. Neither route fits if the discount eats your margin or if invoices tend to end up in dispute. The tokenization for SMEs guide details that break-even point.
Could your accounts receivable be financed with an issuance instead of being discounted invoice by invoice? Take the issuance diagnostic (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
Is factoraje the same as factoring?
Yes. Factoraje is the usual term in Mexico; factoring is the one used in Spain, Chile, Peru, Colombia and the international market. Both describe the assignment of invoices receivable to a factor that advances their amount at a discount. The variant organized by the buyer is called supplier factoring, reverse factoring or, in Spain, confirming.
What is factoring in Peru?
It is the purchase of invoices or receivables by an entity that advances their amount at a discount. In Peru it revolves around the negotiable invoice, a negotiable instrument created by Ley 29623, which can be recorded in an account at CAVALI. The customer has eight business days to accept or contest it; if they do not respond, their approval is presumed. The SBS regulates factoring and discounting.
What happens if the customer does not pay in factoring?
It depends on the type. In recourse factoring, the company that assigned the invoice returns the advance to the factor. In non-recourse factoring, the factor assumes the customer's insolvency, but not commercial disputes: if the customer refuses to pay because the goods arrived defective, the risk returns to the company. Review that clause in the contract before signing.
Does factoring count as company debt?
It depends on the type and the accounting standard. In recourse factoring, the company remains liable for non-payment, so the receivable usually remains on the balance sheet and the advance is recorded as a liability. In non-recourse factoring, if the risks are substantially transferred, the invoice can be derecognized. It is advisable to confirm this with the auditor before signing.
Is a tokenized invoice a security token?
Not always. A bilateral assignment of invoices is still an assignment of receivables. When receivables are pooled, standardized and fractionalized into transferable tokens offered to multiple investors, the structure comes close to a transferable security and MiFID II applies, with a prospectus or an exemption. In that case, the token falls outside MiCA, which excludes financial instruments.
