Factoring of receivables is a means of processing financial transactions. The factor is a third party who buys the accounts receivable from a business. There are two main types of factoring.
- Advance factoring involves a cash advance that is provided to the company from the factor. This is usually between 70 and 85 percent of the purchase price for the accounts. The balance is paid upon collection for the accounts.
- Maturity factoring occurs when the purchase price is not paid until the accounts in question have reached maturity.