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In finance, the selling of accounts receivable on a contract basis to an agency known as a factor in order to obtain cash payment before the accounts come due. The factor assumes full responsibility for credit analysis of new accounts, payments collection, and credit losses. Factoring is most often used in seasonal industries such as textiles and shoes to shift the functions of credit and collection to a specialized agency.
This entry comes from Encyclopædia Britannica Concise. For the full entry on factoring, visit Britannica.com.