Financial Terms Glossary

Factoring

Formal

This is a process where a Bank effectively buys the debts of a business and lends monies to the business using the debts as security. This process provides businesses with cash 'ahead' of the time it would normally have received monies from its customers.

Informal

Business is booming and we are making profits. That's great but it doesn't mean that we have cash in the bank - because our customers take 60 days to pay, and yet we have to pay to make our products before they are shipped. Factoring is the 'sale' of our book debts to a bank in exchange for cash to help us fund business expansion.

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