Factoring

Factoring is a financial transaction in which a business sells its accounts receivable to a third party, called a factor, at a discount to receive immediate cash. This process helps businesses improve cash flow without waiting for customer payments and is especially useful for companies with long payment cycles. The factor assumes the risk of collecting the receivables, providing liquidity to the business.

Example

A company sells $100,000 in invoices to a factor and receives 80% of the value upfront, with the remainder paid after the customers settle their accounts.