What does commercial factoring mean?

Commercial factoring is a financial scheme based on the factoring contract signed by the factor and the supplier, including financing, credit risk management, accounts receivable management and collection service. According to the factoring contract, the factor accepts the accounts receivable from the supplier and pays on behalf of the buyer. If the buyer cannot pay, the factor will pay the supplier.

Simply put, commercial factoring means that the seller sells the goods to the buyer, and the seller transfers the accounts receivable in the course of trade to the factoring company, which will handle it.

Commercial factoring is debt financing based on social trade. From the perspective of risk, the main credit risk of commercial factoring comes from buyers and sellers. Generally, the amount of financing for customers is relatively small, and the cost will be relatively high.

Commercial factoring generally provides trade financing credit guarantee, accounts receivable management and collection services. Factoring contract refers to a contract in which the supplier transfers the accounts receivable (hereinafter referred to as "accounts receivable" or part of accounts receivable, depending on the context) that have been or will be formed to the factor in order to realize one or more functions of household management of accounts receivable, collection of accounts and prevention of bad debts, whether for financing purposes or not.