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Debt Factoring
Debt factoring, also known as accounts receivable financing, is a financial transaction where a business sells its accounts receivable (invoices or outstanding payments from customers) to a third party, known as a factor, for a discounted amount. The factor then takes over the responsibility of collecting the payments from the customers.
Here's why debt factoring is important for businesses:
- Improves cash flow: Businesses can receive immediate cash for their outstanding invoices, rather than waiting for customers to pay.
- Reduces risk: The factor assumes the risk of collecting payment from customers, reducing the risk of bad debts for the business.
- Frees up time and resources: Businesses can focus on other aspects of their operations, rather than chasing after unpaid invoices.
- Access to credit: Some factors may offer credit facilities to their clients, allowing them to grow their business.