: Once paid, the factor sends the remaining balance to the business, minus a factoring fee (usually 1.5% to 3%). Key Types of Factoring
The accounting for factoring depends on whether it is treated as a or a loan : As a Sale (Derecognition) : factoring in accounting
Factoring is a financial transaction where a business sells its unpaid invoices () to a third party, known as a factor , to receive immediate cash . This provides quick liquidity instead of waiting 30, 60, or 90 days for customers to pay. How the Process Works : Once paid, the factor sends the remaining
: The factor manages collections but only pays the business when the invoice reaches its due date (maturity). Accounting Treatment How the Process Works : The factor manages
: The business sells one or more invoices to a factor.