factoring

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Most of us would rather have our blood spilled than sit through a lecture about what factoring is and how it works. It is just pretty darn boring to explain and take part in. So rather than wasting everyone's time, here is the "Reader's Digest Condensed Version" of factoring in 100 words or less:


Factoring
is a financial transaction whereby a business sells invoices to a third party (this party is called a "factor") at a discount in exchange for immediate money with which to finance continued business.


Factoring
is different from a regular bank loan in that the emphasis is on the value of the receivables, not the firm's credit worthiness. Also, factoring is not a loan in the traditional sense. It is a purchase of a financial asset (invoices).

Finally, a bank loan involves two parties whereas factoring involves three. The three parties directly involved in factoring are 1) the one who sells the receivable, 2) the debtor, and 3) the factor.

There, that wasn't so bad, was it? Now you know what factoring is in a nutshell. Bloggers speaking about it can be found at sites like factoring-invoices and blog2.facteon.

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