Factoring is a common practice in many professions but largely unknown in the gallery world. Factoring deals are usually short-term agreements lasting up to three months, where the lender effectively advances payment to the gallery for unpaid invoices, so tend to be more expensive than other loans. Factoring can work two ways:
- the factoring company pays the seller directly and immediately invoices the buyer
- if an invoice has a future due date the factoring company will pay the seller in advance
Case StudyA collector of Old Masters had sold a piece by a prominent Dutch artist through a dealer. The sale was made and an invoice was issued, with the full amount due for payment four months later.
The invoice was assigned to the order of the lender who provided the seller with the appropriate funds. The lender was paid back after four months when the buyer paid and took possession of the artwork.