What Is Debt Factoring?

Everything you need to know about "debt factoring", from the defintion through to more information about how it improves cash flow and prices for factoring.

Definitions

When you google "debt factoring" two of the top answers are the definitions on Ask.com and the one on BusinessDictionary.com. The key part of the definition given is:

"The sale of a business' invoices to a third party. The third party is charged with processing the invoices, and the business lending the invoices is able to receive loans based on the expected payments on the invoices."

I cannot see an option to update the definition on either site, but it seems an extremely clumsy form of words.

My Definition Of Debt Factoring

A better definition might be:

"The sale of business' unpaid invoices to a third part. The third party, a factoring company sometimes known as a factor, provides a prepayment against the invoices which can typically be 85% if their value. The factor is then charged with undertaking the collection of the unpaid invoices (credit control) and when the invoices are paid the balance, less the factors charges, is passed on to the business."

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