The
selling of a firm's
accounts receivable to a third party, known as a
factor. 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 allows the firm access to
working capital immediately, which is important especially if the firm might otherwise have a
cash flow problem. The price of accounts receivable financing is determined by the
creditworthiness of the firm's customer, not of the firm itself. See also:
Debt assignment.