Factoring

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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.


See also