Factoring refers to management of receivables of a company by a financial intermediary (factor) for a fee. The need for factoring arose on account of the inordinate delay faced by suppliers for realizing their bills from their customer.
The purchase of book debts is central to the function of factoring, permitting the factor to provide basic services such as
- Administration of the seller’s sales ledger
- Provision of repayment against the debt purchased
- Collection of debt purchased
- Covering the credit involved