Whati is meant by 'Factoring' in accountancy/finance?

geek84 Registered Posts: 568 Epic contributor 🐘
Hi Folks

Could someone be kind enough to tell me what the term 'Factoring' is in accountancy/finance?



  • Nps
    Nps Registered Posts: 782
    If you have lots of trade receivables, you have lots of money owing to you, but it's no good to you until you actually receive it. If you had cash flow problems, you could 'sell' those 'debts' to a factoring company and they would pay you a percentage of the debts up front, then chase the debts themselves (I say debts, but it doesn't necessarily mean the payments are overdue). This is factoring. Depending on the terms and the price paid for the debts, the factoring company may keep all the proceeds or pass some of them back to the original company.
  • geek84
    geek84 Registered Posts: 568 Epic contributor 🐘
    Thank U
  • blobbyh
    blobbyh Registered Posts: 2,415 Beyond epic contributor 🧙‍♂️
    Just think of it as being like Wonga.com only for cash weak companies instead of individuals...
  • stuart-elmes
    stuart-elmes Registered Posts: 6
    This article explains how invoice finance (factoring is one form) works.

Privacy Policy