Introduction to Factoring Factoring is a financial transaction where a company sells its accounts receivable (invoices) to a third party, known as a factor, at a discount. This process allows the company to convert its receivables into immediate cash instead of waiting for the customers to pay. The factor assumes the responsibility of collecting the debts from the company's customers. Types of Factoring Recourse Factoring: In this type, the company remains liable if the factor is unable to collect the debt from the customer. The risk of bad debts remains with the company. Non-recourse Factoring: Here, the factor assumes the risk of non-payment. If the customer fails to pay due to insolvency or credit reasons, the company is not held responsible. Advantages of Factoring Improved Cash Flow: Factoring provides immediate cash, enhancing liquidity for the company to meet its operational needs. Risk Mitigation: Factors assume the risk of non-payment, especially in non-recourse factori...
Sanjivani University, Kopargaon.