Definition Accounts Receivable Factoring. Description.
Accounts Receivable Factoring is obtaining funds by selling
a company's accounts receivable. Normally, the company that "sells" its accounts
receivable receives less than the full amount for the money owed on the accounts.
The main benefit of this approach is that the funds are obtained
now rather than later. This benefits the
Working Capital. Additionally
credit risk is eliminated and the company management can focus on the business
issues rather than on collecting payments.
In factoring, the most important risk assessment is in determining
the creditworthiness of the debtors, not the seller. Thus, factoring can be
offered to companies without strong credit or companies that do not meet traditional
bank lending requirements. It can also be useful for seasonal businesses,
international transactions, and any situation where non-debt financing is
preferred.
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Compare with:
Accounts Receivables
Financing | Debt Restructuring | Quick Ratio
| Recapitalization
| Undercapitalization
| Working Capital
| Sale and Leaseback
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