Factor – Factoring

Debt Term

Factoring is a specialized type of asset based financing in which a business will sell select accounts receivable to a third party – a factor – at a discount to the face value of the receivable. The business receives initial funding which is usually less than the face value minus the discount, which can be 20% to 30% of the face value. The business receives the balance due from the factor when the receivable is paid.

Factoring is an extremely expensive form of financing, and it is able to operate outside of regulations restricting maximizing interest rates because it is technically a sale of receivables, not a loan guaranteed by receivables.

Don Gooding

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