The origin of Factoring thus lies in the essentially International trade and in the financing of trade. There are different types of factoring that are practice. To know more for accounts receivable factoring visit: http://www.sterlingcommercialcredit.com

1. Some Facts on Accounts
Receivable Factoring
Factoring or Accounts Receivable Factoring
in a business is a business transaction in
which a business sells or transfers its
accounts receivables (or invoices) to a third
party (called a factor) at a discount. In this
there are three parties who are directly
involved in the Factoring. They are the
Business Owner or the person who sells the
receivable, the Debtor or the customer of the
Business Owner and the Factor or the buyer
of the Receivable.

2. The Receivable is usually a financial asset
that the Debtor owes the Business Owner in
return for goods sold or services rendered.
There are different types of factoring that are
practised. They could be ‘advance’ factoring
or ‘maturity’ factoring that are mostly in
practice.

3. In the case of ‘advance’ factoring, the seller or
the business owner sells his invoices to the
factor at about 70%- 80% of the cost price of
the account receivable value. It is then up to
the factor to pursue the debtor and collect
the money and then finally repay the balance
30%- 20% of the cost of the invoices back to
the business owner. This repayment to the
business owner is done after deducting the
charges deductible by the factor like
commission, fees etc.
In the case of a ‘maturity’ factoring, the factor
is not required to make any upfront payment
to the business owner. After getting the

4. invoices from the business, the factor
proceeds to collect the receivables from the
customer or the debtor within the
predetermined or stipulated time, say 2
weeks or 1 month. In case the debtor fails to
repay within that period, the factor repays
the business owner and later proceeds to
collect the money from the debtor.
Factoring is a very common practice in the
Manufacturing Industry. At times the
Manufacturing Unit does not have sufficient
cash to buy raw materials. At such times, they
borrow it ad when they have the required
credit, they pay it back. In a similar manner,

5. when the raw material supplier need
anything from the manufacturing unit but are
short of the requisite credit, they may also
take similar Factoring approach.
The concept of Accounts Receivable
Factoring had, in all likelihood originated in
the ancient Mesopotamian culture. In fact the
rules of Factoring were also preserved under
the Code of Hammurabi.

6. For further information about Accounts
Receivable Factoring visit:
http://www.sterlingcommercialcredit.com