factoring


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Factoring

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.

factoring

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.

factoring

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 ?
Of primary concern is the type of factoring being offered: full recourse or non-recourse.
They can now take advantage of this behavior to achieve even faster factoring.
com, an online directory for invoice factoring companies, was started by financial service providers and advocates for a better way of educating business owners about invoice factoring.
But if your business has a profit of 10%, you are losing a third of your profit by factoring.
Pollard of Reading, England, invented the "number field sieve" for factoring large numbers.
Key to landing a factoring deal is the age of the accounts receivables.
Distinctive Solutions' Factoring Software System has been installed in more than 350 factors and commercial banks worldwide.
The present achievement also highlights the potential vulnerability of cryptographic security systems based on the assumption that factoring large numbers is difficult.
Nine-year old Capital Factors is one of the country's fastest growing factoring companies.
used a new version of the "quadratic sieve" factoring algorithm.
Only 10 years ago, just a handful of number theorists cared about factoring numbers.
158]) and in factorization of integers (finding which prime numbers when multiplied together produce a given composite number), the result was a new factoring algorithm.