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

geek84

Hi Folks

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

Thanks

Nps

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

Thank U

blobbyh

Just think of it as being like Wonga.com only for cash weak companies instead of individuals...

stuart-elmes

This article explains how invoice finance (factoring is one form) works.

http://www.mycreditcontrollers.co.uk/Articles/invoice-financing-factoring-explained.html