Factor

A factor (or factoring company) is a financial institution that purchases a company’s accounts receivable, advances funds to the company, and manages the collection of those receivables. Depending on the contract, it may also assume the risk of non-payment.

Example

A company signs a contract with a factoring company. Each week, it sends the factoring company its new invoices and receives financing in return.

Why It’s Important

Factoring provides quick access to cash and can relieve the company of some of the burden of collecting payments. Its terms (fees, eligible customers) should be carefully compared.

For more information: The Credit Management Guide.

See also: factoring, assignment of receivables, deconsolidated factoring.