Account Receivable Factoring

What is Account Receivable Factoring?

When debtors do not settle their accounts by the due date on which payment is required, this can create cash flow problems for the company or other entity to which the debt is owed. Some choose to sell the debt, so that a third party assumes ownership of it in exchange for an upfront cash payment. This is referred to as ‘account receivable factoring’, and is similar in nature to credit factoring, whereby credits due in the future (such as credit card payments) are sold.

Account Receivable Factoring and Debt Collection

Account receivable factoring and debt collection both provide viable options for companies and individuals wishing to recover bad debts. In the case of debt factoring, the upfront amount paid will not equal the full value of the debt, due to the risk that the debtor will not settle the amount of his or her own accord. With debt collection, a third party can collect debt on the debt originator’s behalf, without taking ownership. In these cases, the debt collection agency is usually paid a commission of each successfully-collected amount.