key term - Factoring

Definition

Factoring is a financial transaction where a business sells its accounts receivable (invoices) to a third party (a factor) at a discount, in order to obtain immediate cash. This method enables businesses to manage cash flow and immediately access funds without waiting for customers to pay their invoices.

Related terms

Accounts Receivable:

Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

Cash Flow:

The total amount of money being transferred into and out of a business, especially affecting liquidity.

Liquidity:

A measure of the ease with which assets can be converted into cash quickly without significant loss in value