- Accounts receivable financing, commonly referred to as factoring, is an essential component of trade finance and has existed in developed economies for centuries.
- Simply stated, factoring allows a company to improve its cash flow cycle through the sale of its accounts receivables to an outside party (the factor).
- By converting accounts receivable into cash, a company increases both its productivity and financial health.
- From an investor standpoint there is an inefficiency that can be received from the attractive yields charged to the client based on their often poor business credit; however, much security can be had from the end debtor (receivable).
