In finance, the term “factoring” refers to a practice in which accounts receivable (payments due) are sold to a third party at a discount in exchange for immediate payment. The third party then collects the payments at their full face value, earning a profit on the difference.

The term is synonymous with accounts receivable financing.

Businesses may use factoring to access ready money when their financial situation does not allow them to wait until payment of each invoice has been settled.

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