Factoring Transactions

Summary

This practice note discusses factoring, which is a type of financing transaction where accounts receivable (sometimes referred to as accounts or receivables) are sold by the company that originates the accounts (the originator) to a third party for cash. This allows the company to trade their right to receive payments from their customers in the future for a guaranteed income stream from the third party factoring provider (referred to as the factor). Factoring is an alternative to a traditional bank financing of accounts receivable.