Debt factoring is the sale of a business’ invoices to a third party. The third party, or the receivable factor, is charged with processing the invoices, and the business selling the invoices is able to receive funds based on the expected payments on the invoices. Debt factoring is also known as the selling of account receivables.
There are many advantages to debt factoring. First, debt factoring provides a business with immediate cash flow for the accounts receivable of the customer. This facilitates smooth growth. Debt factoring also enables the business to reduce the time frame for its cash cycle, thus being able to purchase goods and sell them to make profit. An added bonus to the selling of account receivables is that it helps protect the business from bad debts, especially when using non-recourse factoring. Finally, invoice or debt factoring offers a method of being paid right away on invoices that would normally take 30 to 90 days to pay otherwise.
Considering these advantages of selling account receivables, debt or invoice factoring is a wise solution for fast cash flow solutions.