What is factoring?

Question

I want definition of FActoring?

Answer 1

Factoring is when a company sells it's accounts receivable to another company who then collects from the original customer.

You own a company that sells products on credit terms to your customers. You deliver the goods and they have 30 days to make full payment. You want a faster cashflow, so you take the receivables, say $10,000 worth and sell them to the factor. The factor pays you $9,500 and then collects the original $10,000 from your customer. You get less money, but receive it immediately. The factor makes the difference in the discount, but has to collect the money from the customer.

Answer 2

Sometimes referred to as a Full Service Factoring, this provides the complete answer to slow-paying customers, shortage of working capital and if needed, protection against bad debt losses. If credit protection is part of the Factoring agreement, it is referred to as “non-recourse” Factoring. A Factoring agreement where the credit risk on the debtor remains with the seller is called “with-recourse” Factoring.

Answer 3

Factoring, also known as accounts receivable financing, is a form of asset-based lending that can boost a company’s short-term cash flow. It is not a loan; no debt is assumed by factoring, and the funds are unrestricted. Let’s take a look at how factoring works.

Companies sell their invoices (aka accounts receivables) to a factoring company in exchange for an immediate advance on the total. Factoring companies can disperse funds in as little as 24 hours, advancing up to 95% of the total.

Answer 4

Dale explained it beautifully!