Accounts Receivable Factoring

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What is Accounts Receivable Factoring? Meaning.

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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