Business Glossary

outright sale of a firm's accounts receivable to another party (the factor) without recourse, which means the factor must bear the risk of collection. Some banks and commercial finance companies factor (buy) accounts receivable. The purchase is made at a discount from the account's value. Customers either remit directly to the factor (notification basis) or indirectly through the seller (non-notification basis).

the process of writing a promissory note with accounts receivable as collateral. If the note is dishonored, the assignee can collect upon the accounts receivable. In a general assignment, all the receivables serve as collateral. New receivables can be substituted for those collected. In a specific assignment, the parties sign an agreement specifying who will receive collection (assignor or assignee), whether customers will be notified of the arrangement, specific accounts to be collateralize, and the finance charges.