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Account Receivable Factoring is another term for Invoice Factoring: A type of invoice financing in which you sell a portion or all your business’s outstanding invoices to a third party as a means to increase cash flow and income stability.
With invoice factoring, the business would sell their accounts receivables to improve their working capital, which would give the business instant funds which could be used to cover business expenses.
The company gets the rest of the value of the invoice as a third-party factoring company collects payments from its customers. A factoring company pays most of an invoice upfront to a business, with the balance being paid when the invoice is paid by the customer, less their fee for the factoring. Only companies who issue invoices to customers are eligible to receive a factoring loan, so the factoring process begins when your company does business with the customer.