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A third party that buys a firm's accounts receivable. If a firm is not confident in its ability to collect on its credit sales, it may sell the right to receive payment to the factor at a discount. The factor then assumes the credit risk associated with the accounts receivable. This provides the firm immediate access to working capital, which is important, especially if the firm has a cash flow problem. The price of factoring is determined by the creditworthiness of the firm's customer, not of the firm itself. It is also known as accounts receivable financing.
A firm that purchases accounts receivable from another firm at a discount. The purchasing firm then attempts to collect the receivables.
To sell accounts receivable to another party at a discount from face value. Thus, a firm in need of cash to pay down short-term debt may decide to factor its accounts receivable to another firm.
- 1a FACTOR INPUT that is used in production (see NATURAL RESOURCES, LABOUR, CAPITAL).
- a business that buys in bulk and performs a WHOLESALING function.
- a business that buys trade debts from client firms (at some agreed price below the nominal value of the debts) and then arranges to recover them for itself. See FACTOR MARKET, FACTORING.