Have you ever heard about factoring? Most people are not aware of this type of transaction and this video gives a brief but clear explanation of what it is.
Factoring is a financial transaction, specifically a kind of debtor financing, wherein a company puts up its accounts receivable for sale to another party. The samples of accounts receivable are the invoices issued by the business that is yet to be paid. The third-party involved in the factoring is called the factor.
The accounts receivable are sold at a discount.
You might wonder if this can be made into a business? Well, there are factoring businesses out there and they are not few. When a business is looking for immediate sources of funds and cash is not available for them, these businesses seek factors in order to expedite the turnover of their accounts receivables into cash, although for lesser amounts.
In exchange for readily available funding, businesses accept the loss they get for selling their receivables at a lower price. If you are thinking of entering into a factoring transaction or you are interested in putting up a factoring business, this video will surely help you understand the process better.