Account Receivable Factoring

What is Account Receivable Factoring?

The term ‘factoring’ is a financial term which describes the process of selling receivables, whether in the form of credit card payments or invoices, to a third party. This type of financing differs from a loan in a number of ways – the invoices sold are sold as assets, and thus the money received is not based on credit. The exchange also involves three parties – the seller of the account receivables, the buyers, and the holder(s) of the account.

Who can Provide Account Receivable Factoring?

Various different financial service providers offer account receivable factoring. A collection agency which specializes in collecting outstanding account payments on behalf of their clients may also offer factoring services, where invoice ownership is bought. Bear in mind that the price at which an invoice will be bought is usually lower than the actual amount owing, as factoring companies need to safeguard against receivables proving non-collectible. A collection agency can also collect money on your behalf, and may accept payment in the form of a commission.