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Factoring is sometimes called accounts receivable financing. It is based on some very simple principles. Factoring is one of those kinds of deals where everyone is actually the winner. In the world of business, cash flow is often very critical to the success of a business. However, it is common to bill customers and the billing cycles can run from 30 to 90 days or longer. On your balance sheet, money that is owed to the business, accounts receivable, are shown as assets, but they are assets that are worthless until the funds are actually paid. The Factor provides the cash immediately by purchasing the accounts receivable and becoming the collection agent.
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