KEYTAKEAWAYS
Explore Factoring, a financial practice involving the sale of outstanding invoices to obtain quick cash, albeit at a potentially higher cost compared to traditional financing.
CONTENT
DEFINITION
Factoring – A Financial Transaction Involving the Sale of Outstanding Invoices.
Factoring, alternately referred to as debtor’s finance or accounts receivable finance, is a financial practice wherein a factor company purchases a business’s unpaid invoices, often at a discounted rate. These outstanding invoices represent amounts owed to the business by its customers or debtors. After acquiring the invoices, the factor company assumes the responsibility for collecting the outstanding debts from the debtors.
Factoring serves as a mechanism for businesses to swiftly access cash flow, providing an immediate infusion of capital. However, this convenience often comes at a cost, as factoring can be relatively expensive compared to conventional financing methods.
This financial approach is beneficial for businesses seeking liquidity and wishing to delegate the burden of debt collection to a specialized entity. Factoring is widely used in various industries to manage working capital and maintain financial stability.
