Factoring is a service involving the purchase by a financial institution, called a Factor, of receivables due to exporters / suppliers (sellers) by their customers (buyers), with the Factor assuming full credit and collection responsibilities.

In other words, Factoring is a financial transaction whereby an exporter/supplier sells its accounts receivable (i.e. invoices) to a third party (called a Factor) at a discount in exchange for immediate cash with which to finance continued business.

The Factor performs at least two of the following functions on behalf of the seller:

Credit Protection,

Prepayment against accounts receivable,

Collection of factored debt,

Credit management and sales ledger administration and analysis.

How does that Work?

Factoring

 

 

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