Factoring

Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.J. Downes, J.E. Goodman, “Dictionary of Finance & Investment Terms”, Baron’s Financial Guides, 2003; and J.G.Siegel, N.Dauber & J.K.Shim, “The Vest Pocket CPA”, Wiley, 2005. Wikipedia articles seem to define accounts receivable in much the same way they define invoices. In GAAP Accounting, invoices may be the foundation for recording accounts receivable entries. A Business will sometimes Factor its Receivable Assets to meet its present and immediate Cash needs.J. Downes, J.E. Goodman, “Dictionary of Finance & Investment Terms”, Baron’s Financial Guides, 2003. Taken from a combination of the definitions of a financial asset and accounts receivable Forfaiting is a Factoring arrangement used in International Trade Finance by Exporters who wish to sell their receivables to a forfaiter.Please Refer to the Wiki article, forfaiting, for further discussion on cites. Factoring is not the same as invoice discounting (which is called an “Assignment of Accounts Receivable” in American Accounting – as propagated by FASB within GAAP).J. Downes, J.E. Goodman, “Dictionary of Finance & Investment Terms”, Baron’s Financial Guides, 2003; and J.G.Siegel, N.Dauber & J.K.Shim, “The Vest Pocket CPA”, Wiley, 2005.in response to the previous indication of “Citation needed|date=June 2009”. Factoring is the sale of receivables, whereas invoice discounting (“Assignment of Accounts Receivable” in American Accounting) is a borrowing that involves the use of the accounts receivable assets as collateral for the Loan. However, in some other markets, such as the UK, invoice discounting is considered to be a form of factoring, involving the “assignment of receivables”, that is included in official factoring statistics.BCR Publishing, “The World Factoring Yearbook”, UK Section. It is therefore also not considered to be borrowing in the UK. In the UK the arrangement is usually confidential in that the debtor is not notified of the assignment of the receivable and the seller of the receivable collects the debt on behalf of the factor. In the UK, the main difference between factoring and invoice discounting is confidentiality.ABFA, [ ], Differences between factoring and invoice discounting.