UK Accounting Glossary
This means receiving funds instantly without having to wait for payment from a customer. A factoring company pays a percentage of the invoice to the business being paid, as much as 95%, and takes a cut of the cost.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.
It was just 8% of total world factoring volumes in 1992, according to Factors Chain International.
A big advantage of factoring and invoice discounting is how they enable fiscal adaptability and flexibility.
For smaller companies, suffering from cash flow problems, factoring may prove a solution.
The final chapter debates the legal structure of international factoring.
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This glossary post was last updated: 26th December 2018.