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Definition of 'Factor'

A factor is a person or company that intermediates in a transaction between two other parties. In finance, a factor is a company that buys receivables from businesses and then collects the payments from the customers. The factor charges a fee for this service, which is typically a percentage of the receivables.

Factoring is a form of financing that can be used by businesses to improve their cash flow. By selling their receivables to a factor, businesses can get the money they need to pay their bills and operate their businesses. Factoring can also help businesses to improve their credit scores, as the factor will typically report the payments made by the customers to the credit bureaus.

There are two main types of factoring: recourse factoring and non-recourse factoring. In recourse factoring, the factor has the right to go back to the business and collect the money if the customer does not pay. In non-recourse factoring, the factor does not have this right.

Factoring can be a good option for businesses that need to improve their cash flow or that have difficulty getting credit from banks. However, it is important to understand the fees and costs associated with factoring before deciding whether it is the right option for your business.

Here are some additional details about factoring:

* The factor typically charges a fee of 1-2% of the receivables.
* The factor may also charge a fee for collections.
* The factor may also require the business to provide collateral, such as inventory or accounts receivable.
* Factoring can be a good option for businesses that have a high volume of receivables and that have good credit.
* Factoring can be a bad option for businesses that have a low volume of receivables or that have poor credit.

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