Factoring: Difference between revisions
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* [[Securitisation]] | * [[Securitisation]] | ||
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[[Category:Corporate_finance]] | |||
Revision as of 14:00, 8 October 2020
The sale or transfer by a supplier of legal title to accounts receivable (invoices).
The supplier sells or transfers title to the receivables to a third party known as a factor.
The arrangement can be either with or without recourse.
Factoring is often a convenient - but relatively expensive - form of finance for weaker corporate credits.
The supplier sells its invoices, at a discount, to the factor. The factor then becomes responsible for collecting the debt.
A factoring agreement between the factor and a client sets out the terms on which a factoring arrangement is made.
As noted above, factoring arrangements can be with or without recourse.
Recourse factoring allows the factor to recover from the supplier/borrower any losses caused by bad debts.
