Factoring is a financial transaction where a company sells its accounts receivable (invoices) to a third-party financial institution, known as a factor, at a discount. The factor advances a portion of the invoice amount to the company immediately, typically around 70% to 90%, and collects the full amount from the debtor when the invoice becomes due. Factoring provides companies with immediate cash flow, improves liquidity, and transfers the risk of non-payment to the factor. It is commonly used by businesses to accelerate cash collection, fund operations, and mitigate credit risk. Factoring arrangements vary in structure and terms, including recourse and non-recourse factoring, and may involve notification or non-notification of the debtor. Factors charge fees or discount rates based on factors such as the creditworthiness of the debtor, invoice aging, and the volume of transactions. Understanding factoring is crucial for managing working capital, financing growth, and optimizing cash flow.