Definition for : Factoring

Factoring, one of the Off-balance sheet financing techniques, is a credit transaction whereby a company holding an outstanding commercial Bill of exchange transfers it to its bank or a specialised financial institution in exchange for the payment of the bill, less Interest and commissions & fees. Factoring companies, also called factors, specialise in mobilising a part of the Receivables, which they discount (see Discounting of bills of exchange) or buy. These companies handle the recovery of Bad debts in exchange for a commission. Factoring is the Discounting of bills of exchange packaged with one of four services: financing at a competitive Cost; Outsourcing of the recovery function; Bad debt Insurance; removal of Assets from the Balance sheet. Depending on the type of service rendered, the receivable may or may not remain on the Balance sheet of the company.

(See Chapter 22 Shares of the Vernimmen)

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