Debt factoring is a financial arrangement where a company sells its accounts receivable to a third party at a discount in order to receive immediatecash.
What are the main benefits of debt factoring?
Trade recievables are turned into cash quickly which can improve short-term cash flow
No loss of control of the business and no extra costs incurred such as interest
What are the main drawbacks of debt factoring?
Quite a high cost
Reduce the firm's overall profit
Poor cash flow and liquidity are common causes of business failure which can make factoring a viable solution, particularly for small firms
What is the third party called when a business sells their invoices to this third party?
