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Factor

Factor

What is a 'Factor'

A factor is a financial intermediary that purchases receivables from a company. A factor is essentially a funding source that agrees to pay the company the value of the invoice less a discount for commission and fees. The factor advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party.

Explaining 'Factor'

A factor allows a business to obtain immediate capital based on the future income attributed to a particular amount due on an account receivable or business invoice. Accounts receivable function as a record of the credit extended to another party where payment is still due. Factoring allows other interested parties to purchase the funds due at a discounted price in exchange for providing cash up front.

Factoring Operations

The terms and conditions set forth by a factor may vary depending on their own internal practices. Most commonly, factoring is performed through third party financial institutions, referred to as factors. Factors often release funds associated with newly purchased accounts receivable within 24 hours. Repayment terms can vary in length depending on the amount involved. Additionally, the percentage of funds provided for the particular account receivables, referred to as the advance rate, can also vary.

Example of Factoring

Assume a factor has agreed to purchase an invoice of $1 million from Clothing Manufacturers Inc., representing outstanding receivables from Behemoth Co. The factor may discount the invoice by say 4%, and will advance $720,000 to Clothing Manufacturers Inc. The balance of $240,000 will be forwarded by the factor to Clothing Manufacturers Inc. upon receipt of the $1 million from Behemoth Co. The factor's fees and commissions from this factoring deal amount to $40,000.


Further Reading

Why Gaussian macro-finance term structure models are (nearly) unconstrained factor-VARsWhy Gaussian macro-finance term structure models are (nearly) unconstrained factor-VARs
www.sciencedirect.com [PDF]
The main objective of this study is to test the ability of the Fama-French three factor model to explain the variation in stocks rate of return over the period from Jun 1999 to June 2010 in Amman stock market, the study also investigates the existence of the size and value effects …

Economies of scale and self-financing rules with non-competitive factor marketsEconomies of scale and self-financing rules with non-competitive factor markets
www.sciencedirect.com [PDF]
The main objective of this study is to test the ability of the Fama-French three factor model to explain the variation in stocks rate of return over the period from Jun 1999 to June 2010 in Amman stock market, the study also investigates the existence of the size and value effects …

Tourism as a long-run economic growth factor: the Spanish caseTourism as a long-run economic growth factor: the Spanish case
www.tandfonline.com [PDF]
The main objective of this study is to test the ability of the Fama-French three factor model to explain the variation in stocks rate of return over the period from Jun 1999 to June 2010 in Amman stock market, the study also investigates the existence of the size and value effects …

Finance and World PoliticsFinance and World Politics
ideas.repec.org [PDF]
The main objective of this study is to test the ability of the Fama-French three factor model to explain the variation in stocks rate of return over the period from Jun 1999 to June 2010 in Amman stock market, the study also investigates the existence of the size and value effects …

Asset pricing implications of benchmarking: a two-factor CAPMAsset pricing implications of benchmarking: a two-factor CAPM
www.tandfonline.com [PDF]
The main objective of this study is to test the ability of the Fama-French three factor model to explain the variation in stocks rate of return over the period from Jun 1999 to June 2010 in Amman stock market, the study also investigates the existence of the size and value effects …

Finance and the Sources of GrowthFinance and the Sources of Growth
www.sciencedirect.com [PDF]
The main objective of this study is to test the ability of the Fama-French three factor model to explain the variation in stocks rate of return over the period from Jun 1999 to June 2010 in Amman stock market, the study also investigates the existence of the size and value effects …


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Section 508

WCAG 2.0

Section 508