factoring investment & finance definition

The selling or transferring of accounts receivable in order to gain funds that are immediately available. A company sells its receivables to another company, which is called a factor. Factoring can be done without recourse, which means that the company that buys the accounts receivable bears the risk of repayment. One example of factoring without recourse is taking a charge such as American Express, Visa, or MasterCard to pay for a purchase. Factoring can be done with recourse, which means that the company that originally sold the goods will be liable to the purchaser if the receivable is not collected. Discounting is another form of financing accounts receivables.