40g: What is "factoring"?

[mlwl8521]

I’m guessing it has something to do with buying someone’s accounts receivables, like a debt collection agency.

A consumer uses his credit card with VISA and runs up a 10,000 debt, then loses his job

ABC Capital, a debt collection agency, pays VISA 2400 dollars for the chance to collect on the 10,000 debt.

Does the word always imply a distressed situation (the buyer doesn’t have a high expectation of actual collection)?

[busprof]

@mlwl8521

I’m guessing it has something to do with buying someone’s accounts receivables, like a debt collection agency.

…

Does the word always imply a distressed situation (the buyer doesn’t have a high expectation of actual collection)?

A factoring company pays cash up front in exchange for the receivables of another company. They pay an amount that is some “factor” times the amount due. The factor is based on the credit status and collections patterns on the accounts involved. These firms provide liquidity to companies needing immediate cash. One of my friends used to do that - the company made pretty good money.