| The mention of factoring may bring to mind some bad | | | | Factoring is one of those kinds of deals where |
| memories from math class, but in the world of | | | | everyone is actually the winner. In our example, the |
| Business Finance it is the buying and selling of | | | | debtor gets some time to pay his debt. You get some |
| accounts receivable. | | | | cash right on the spot. The person who "bought" the |
| Factoring is sometimes called accounts receivable | | | | IOU makes a profit of $20 when the money is actually |
| financing. It is based on some very simple principles. If | | | | paid. In the world of business, cash flow is often very |
| you happened to be playing cards one night and won | | | | critical to the success of a business. However, it is |
| $100 from a buddy, you might be willing to accept an | | | | common to bill customers and the billing cycles can run |
| IOU from him. The IOU might be payable in one month | | | | from 30 to 90 days or longer. On your balance sheet, |
| and so another buddy might offer you $80 in cash to | | | | money that is owed to the business, accounts |
| buy the IOU from you on the spot. If you accept this | | | | receivable, are shown as assets, but they are assets |
| deal, you have actually engaged in a something | | | | that are worthless until the funds are actually paid. |
| exactly the same as factoring. | | | | |