Factoring in Islam

Everyday Islamic Finance Business and Career Questions
#1

Assalamu Alaikum

One of my customer who would like to start the factoring system to their business.
Eg: There are 3 people involves in this case. Person A ( Who buy goods) Person B ( Who sell good), Person C (Who does the factoring)

Person A buys the goods from Person B. And agrees to pay the money in 30 days due. Whereas Person B goes to Person C and show the invoice and get 75% of the money immediately. And Person A will pay the money to Person C behalf of that invoice 100%. Andf the person C releases the 25% amount which held for the invoice amount to Person B immediately.

For the factoring service, Person C charges some % like 2.5% or 5% depending upon the customers which are fixed for the invoices.

I would like to know whether this falls under interest and permissible in Islam.

Jazakhalah khiar

#2

Assalaamu alaykum,

This type of service is not Shariah compliant. The factoring provider is essentially providing a loan, charging a fee for this in the above said manner would tantamount to Riba.

Allah knows best

#3

Appreciate your response and will inform them accordingly.

Jazakhalah khiar