fac·tor·ing n: the purchasing of accounts receivable from a business by a factor who assumes the risk of loss in return for some agreed discount

Merriam-Webster’s Dictionary of Law. . 1996.

An arrangement whereby a creditor sells his debts to a factor for an immediate sum, usually for a proportion of their face value. The factor then collects the debts as they fall due. Bad debts revert to the debtor who has to repay the amount received from the factor.

Easyform Glossary of Law Terms. — UK law terms.

a form of asset financing based on the sale of book debts. Essentially, factoring involves the purchases from suppliers of accounts payable to them by customers to whom they have provided goods or services; such accounts are referred to as 'receivables'. For an example, see Re Charge Card Services [1987] Ch. 150.

Collins dictionary of law. . 2001.

Also known as invoice discounting. Where a company which supplies goods or services on credit sells its unpaid invoices (that is, book debts or receivables) to a factoring company, at a discount equivalent to the prevailing rate of interest. Factoring can be:
• "Non- recourse factoring", in which case the factoring company takes the credit risk of the invoices not being paid.
• "Recourse factoring", in which case the factoring company can sell any invoices which do not get paid back to the company (which therefore takes the credit risk). The fees charged will reflect this risk.
• "Disclosed invoice discounting" where the customer is aware of the discounting arrangement.
• "Non-disclosed invoice discounting" where the customer is not aware of the discounting arrangement.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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