A financial transaction whereby an entity sells or transfers title to its accounts receivable (A/R) to a third party (known as the factor or factoring company, typically a bank or finance house), at a discount. Ordinarily, the factor has no recourse to the seller in the event these accounts turn uncollectible. The relationship between the seller and factor can be based on notification (notification basis factoring) or non-notification (non-notification basis factoring): in the former the seller’s debtors remit directly to the factor, while in the latter the seller collects payment and remits to the factor (hence it is also called a with-service factoring.)
There are two main types of factoring: discount factoring and maturity factoring.
Factoring is also known as sale of receivables/ sale of AR.
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