BANKING AFFAIRS

Detailed explanation-1: -Definition: Factoring is a type of finance in which a business would sell its accounts receivable (invoices) to a third party to meet its short-term liquidity needs. Under the transaction between both parties, the factor would pay the amount due on the invoices minus its commission or fees.

Detailed explanation-2: -Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.

Detailed explanation-3: -Factoring allows a business to obtain immediate capital or money based on the future income attributed to a particular amount due on an account receivable or a business invoice. Accounts receivables represent money owed to the company from its customers for sales made on credit.

Detailed explanation-4: -Factoring is a financial transaction whereby a company sells its accounts receivable to a third party, the factor, at a discount to obtain cash. Factoring differs from a bank loan in three ways: The emphasis is on the value of the receivables, not the company’s creditworthiness.

Detailed explanation-5: -One of the most common types of accounts receivable finance is factoring. With traditional factoring, a business sells its accounts receivable to a third-party, usually a bank.