Is Factoring permissible in Islam?

In the name of Allāh, Most Gracious, Most Merciful

Assalāmu ῾alaykum wa Rahmatullāhi Wabarakātuh

Factoring is a financial transaction whereby a business sells its Accounts receivable (i.e. invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. (Wikipedia)

This concept of factoring is not permissible in Islam. The surplus amount received over and above what the debt was purchased for, is Ribā (interest).

(Jadeed Fiqhi Masāil, Vol.1, Pg.424, Naeemiyyah)
(Ahsanul Fatāwā, Vol.7, Pg.175, HM Saeed)

The buyer’s transaction will not be affected if the seller/supplier does factoring. The transaction between the buyer and seller is independent from the transaction between the seller and the factor.

And Allāh Ta῾āla Knows Best

Checked and Approved by:
Mufti Ebrahim Desai
Dārul Iftāa