Finance

Factoring

Factoring is a financing model in which a supplier sells the accounts receivable to a separate financial institution in return for cash. Factoring is designed to free up working capital for the supplier, while mitigating nonpayment by the buyer. This financing model assumes that the bank is willing to take on this risk based on the supplier relationship, information and assets.

The concept of factoring may evolve into subscription model of cash flows where multiple months of accounts receivable are sold by a supplier to a bank to buffer future working capital needs.