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What is Factoring

A company which is owed money by trade debtors faces risks. The risk of slow payment or default on those debts can put a strain on its cash flow. One of the ways it can mitigate this problem or perceived problem is by factoring the invoices.

Special companies exist called factors which will pay the company a high proportion of the amount it is owed, in return for the right to collect the debts from the debtors. The company gets a high percentage of the amount it is owed direct from the factor. The factors chases the debt and keep the difference.

The money that is given to the company by the factor is a loan and mortgage papers will be submitted to companies’ house. The percentage of the invoice that the company receives will depend on the risk of default and whether the debt is bought.

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Term created / updated 2005-07-16 23:12:15

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