Factoring

What is Factoring?

In business finance, factoring is a process whereby either debt or credit which is yet to become available is sold beforehand to a third party. This is helpful for businesses which require cash flow and receive many payments on credit accounts as well as those which struggle with clients’ late payments. Debt factoring is a service which may be offered by a collection agency in addition to regular debt collection services.

Debt Factoring versus Debt Collection

Debt factoring and debt collection are both valid systems for obtaining outstanding payments more quickly. With debt factoring, however, it is commonplace for the debt to be purchased at a lower value due to the time and expense involved in extracting payment from debtors. With debt collection, a company is able to collect the full amount owed (minus the fee charged by the collection agency). A professional collection agency which charges commission as a fee can provide a cost-effective debt management solution.