Factoring in Finance

Factoring refers to a type of financing where a financier purchases a debt or payable invoice from a business or seller. The financier, called a factor, buys the accounts receivable at a discounted rate. The buyer then pays the invoice amount directly to the financier responsible for collecting the invoice value.

Factoring allows small businesses access to funds for regular use, growth, and diversification. It is a simple way for exporters to free up funds stuck in the supply chain and accelerate cash flow. Moreover, since businesses sell the accounts receivable to the financier, they also transfer the debt, guaranteeing payment.