Factoring

A method of raising capital by selling on a company’s invoices at a discounted price. The company buying the invoices is known as the factor and it buys the right to collect the amount of the invoice from creditors. It pays the value of the invoice minus a discount usually of between 2% and 6%. The factor takes on the credit risk and receives the money as the debtors settle their accounts. As factoring is based on the creditworthiness of a company’s customers, even businesses with a poor credit history may be able to use this method to raise money.

This definition is for general information purposes only