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Factor is a firm engaged in the business of financing accounts receivable, called factoring. A factoring firm will purchase the accounts receivable from a business minus a small discount. Then the factor is able to collect the full amount of the invoice from the customer even though they paid less than the total amount owed. Businesses that need working capital fast and do not have the time to wait for their customers credit terms to end can use a factor to get the cash they need right away. It is very important for a business using a factor to make sure that its customers have a good history of making payments on time. Foctors do not like when they cannot collect on an account receivable they already paid for and will usually have a clause in the contract that allows them to return the uncollectable receivable to you in exchange for their money back.


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