Factoring (finance)

Encyclopedia : F : FA : FAC : Factoring (finance)

This article is about finance. For factoring in mathematics see factorization or integer factorization.

Factoring is often used synonymously with accounts receivable financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30 to 90 day terms. Businesses benefit from the acceleration of cash flow.

Factoring is considered off balance sheet financing in that it is not a form of debt or a form of equity. This fact makes factoring more attainable than traditional bank and equity financing.

There are usually three parties involved when an invoice is factored:

Seller of the product or service who originates the invoice.
Debtor and recipient of the invoice for services rendered who promises to pay the balance within the agreed payment terms.
Assignee (the factoring company)

External links

From Wikipedia, the Free Encyclopedia. Original article here. Support Wikipedia by contributing or donating.
All text is available under the terms of the GNU Free Documentation License See Wikipedia Copyrights for details.