Factoring
Selling your accounts receivable to a financial firm for cash now, at a discount.
Factoring in round numbers
Hypothetical, in US$ millions for the same invoices: a business receives 0.92 now for receivables with a face value of 1.00. The difference is 0.08, or 8% of face value. Actual collections, recourse, additional fees and retained amounts depend on the contract and customer payments; the difference is not automatically the factor’s profit.
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| Measure | Value |
|---|---|
| Invoice face value | 1.00 |
| Cash received now | 0.92 |
| Difference | 1.00 − 0.92 = 0.08 |
| Discount to face | 0.08 ÷ 1.00 = 8% |
Terms Related to Factoring
Accounts receivable · Working capital · Line of credit · Cash-on-cash return · All of the glossary