what is factoring? (external source of finance)?

Answer 1

elvis is right. Let me just add a bit about why companies do this.

If Company ABC has 100,000 of accounts receivable, there is a good chance that some of that money will never be collected. A variety of factors might make it difficult to collect some of the money. Or the money might take an excessively long period of time to collect. Company ABC estimates that 15% is not collectible, so they end up with a net asset of 85,000.

Now let's say Company XYZ thinks ABC is wrong about its estimate on collectibility. XYZ believes that only 10% of the 100,000 is not collectible. Perhaps XYZ has a better collection mechanism, or has different information about some of the companies owing ABC money. XYZ might propose to purchase ABC's receivables for 87,000. ABC agrees, since 87k is more than the 85k they expect to collect. XYZ is happy, since they believe they can collect 90k.

Answer 2

Some sources of finance are short term and must be paid back within a year. Other sources of finance are long term and can be paid back over many years.

Internal sources of finance are funds found inside the business. For example, profits can be kept back to finance expansion. Alternatively the business can sell assets (items it owns) that are no longer really needed to free up cash.

Answer 3

The sale of a company's accounts receivable invoices to a factor, in order to obtain working capital or account receivable funding. Factoring has many names. You may hear it called receivables factoring, invoice factoring, bill factoring, accounts receivable factoring and factoring invoice discounting.

Answer 4

i be responsive to of three aspects for an company: a million) retained earnings 2) issuing debt (bonds) 3) proportion fairness those are aspects for the capital funds...with a bit of luck that helps you out.