Factoring

Definition

A form of receivables financing in which a business sells its outstanding invoices to a third-party factor at a discount in exchange for immediate cash. The factor assumes responsibility for collecting payment from the underlying debtors and bears the credit risk in non-recourse arrangements. Factoring provides working capital without creating debt on the balance sheet and is particularly used by SMEs and businesses with long payment cycles. Typical advance rates range from 70% to 90% of invoice face value.