Factoring is a vitally important financial transaction in which a business sells its accounts receivable to a third party (called a factor) at a discount to meet its present and immediate cash needs. A factor is a funding source that agrees to pay the company the value of an invoice before its due date. When a significant portion of a company’s income is from accounts receivables, the money collected might not be paid in time for the company to meet its short-term payables. As a result, companies may sell their receivables to a factor who purchases the receivables at a discounted rate and is generally responsible for collecting company’s debts.
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Factoring is a vitally important financial transaction in which a business sells its accounts receivable to a third party (called a factor) at a discount to meet its present and immediate cash needs. A factor is a funding source that agrees to pay the company the value of an invoice before its due date. When a significant portion of a company’s income is from accounts receivables, the money collected might not be paid in time for the company to meet its short-term payables. As a result, companies may sell their receivables to a factor who purchases the receivables at a discounted rate and is generally responsible for collecting company’s debts.
