About.com has a great definition page for accounts receivable factoring ? the selling of outstanding invoices or receivables at a discount to a finance or factoring company that assumes the risk on the receivables and provides quick cash to your business. This site also list three main benefits of factoring:
1)You can pass off collections: Outsourcing your accounts receivable management to another company frees up resources to focus on other more productive activities such as selling.
2) Businesses can free up working capital: Many companies have the majority of capital tied up in inventory. Accounts receivable funding allows a company to free up capital that is tied up in inventories.
3) Invoice factoring is great for quick financing: Accounts receivable factoring will not require a business plan or tax statements. It’s a quick form of cash often used for businesses that are experiencing a cash crunch.