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Home > QFINANCE Dictionary > Definition of factoring

Definition of

factoring

  • 1.

    transferring of foreign debts the practice of transferring title to foreign accounts receivable to a third-party factor that assumes responsibility for collections, administrative services, and any other services requested. Major exporters use factoring as a way of reducing exchange rate risk. The fee for this service is a percentage of the value of the receivables, anywhere from 5% to 10% or higher, depending on the currencies involved. Companies often include this percentage in selling prices to recoup the cost.

  • 2.

    selling firm's debts at discount the sale of accounts receivable to a third party (the factor) at a discount, in return for cash. A factoring service may be "with recourse," in which case the supplier takes the risk of the debt not being paid, or "without recourse," when the factor takes the risk.

    Related definitions of "factoring"

  • 3.

    buying of debts the practice of buying up a business's accounts receivable, providing it with working capital

Definitions of ’factoring’ and meaning of ’factoring’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’factoring’ and other financial terms with our online QFINANCE Financial Dictionary.

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