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Accounts Receivable Financing

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.


the provision of finance (and other related services) by one firm (the factor) to another firm (the client) by discounting its unpaid INVOICES issued to customers, i.e. purchasing the client's TRADE DEBTS.

Factors typically provide immediate cash up to the value of 85% of the client's invoices, thus releasing ready money for the client to use for WORKING CAPITAL purposes. The remaining balance, less the fee for providing the facility, is paid over when the factor has received payment from the customer.

In addition, factors are usually prepared to undertake the administration of their clients' sales ledgers, assess credit risks and insure clients against bad debts, thus saving the client the trouble and expense of maintaining his own sales accounts and credit control departments.

Factoring extends to both domestic and export sales. It can be especially useful in the latter context where credit periods on exports are, on average, two to three times longer than on domestic sales and where there are additional complications arising from dealings with relatively unknown foreign customers and an unfamiliarity with local customs and laws. See EXPORTING, DEBTORS, CREDIT CONTROL.


a financial arrangement whereby a specialist finance company (the factor) purchases a firm's DEBTS for an amount less than the book value of those debts. The factor's profit derives from the difference between monies collected from the DEBTS purchased and the actual purchase price of those debts. The firm benefits by receiving immediate cash from the factor rather than having to wait until trade debtors eventually pay their debts and avoids the trouble and expense of pursuing tardy debtors. See CREDIT CONTROL.
References in periodicals archive ?
Businesses interested in learning more about Colorado Factoring can visit www.
They can now take advantage of this behavior to achieve even faster factoring.
In light of the current economic conditions, the invoice factoring industry is a fast-growing financial service being offered to business owners who need to improve their cash flow or increase their working capital without taking on more debt or diluting their equity position in their business.
But if your business has a profit of 10%, you are losing a third of your profit by factoring.
In 1981, Carl Pomerance of the University of Georgia in Athens invented a factoring method called the quadratic sieve.
Edwards' Massachusetts-based company has just filled this information gap with its February 1 release of "The 1994 Edwards Directory of American Factors," the first authoritative reference tool devoted exclusively to factoring.
Higgins said Fleet decided to sell the factoring unit because "we are not a major player in the factoring business, nor is it a core business of key strategic value.
Although Alford used the same factoring method as the international group, his success depended on a highly sophisticated computer program designed to push each microcomputer to its limit.
Businesses that rely on factoring of their invoices cannot afford downtime or long delays, particularly in a sensitive economy," said GraphOn Vice President of Sales, George Phillips.
Only four years ago, the best anyone could do using a general-purpose factoring scheme was to break a "hard" 71-digit number (one with no small factors) into its prime-number components (SN: 1/14/84, p.
BUSINESS WIRE)--July 31, 1995--Capital Bancorp (NASDAQ:CBCP) today announced that an affiliate of its factoring subsidiary, Capital Factors Inc.
That an 81-digit number has now been factored isn't particularly surprising, although this sets a new record for the largest "hard" number yet cracked by a general-purpose factoring method.