![]() Factors typically release funds linked to newly acquired receivable accounts within 24 hours. Factoring is most often achieved by third-party financial institutions, which are referred to as factors. Factoring helps other interested parties to buy the funds owed in return for supplying cash upfront at a discounted price.ĭepending on their internal activities, the terms and conditions set by a factor may vary. Accounts receivable (AR) act as a record of money which customers owe for credit sales. Functions of a FactorĪ factor helps a company to acquire immediate capital based on potential profits due on account receivable or company invoice owing to a specific sum. A transaction involving a factor involves three parties directly-the factor that buys the receivable, the purchaser of the receivable, and the debtor, who has to make a payment to the owner of the invoice. The factor immediately advances much of the sum invoiced to the client and the rest to the invoiced party upon receipt of funds. A factor is simply a source of financing that offers to pay the company the amount of an invoice minus a commission and fee discount.
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