Debt & Debtor Factoring Definition In Business

Lets explore Debt & Debtor Factoring Definition In Business.

Debtor Factoring Definitions

Debtor Definition: In a business context a “Debtor” is another person or business that owes that business money. It is common practice in the UK when trading with other businesses to grant them credit. For example you supply goods to another business and give them 30 days to pay the invoice.

Factoring Definition: Factoring is a type of business finance, it is also referred to as Invoice Finance. When Factoring, the “Debt” owed to a business by its customers (Debtors) is used as security to lend money from a bank or other lender.

Debtor Factoring Definition: So putting the two definitions above together, “Debtor Factoring” is referring to finance secured against a businesses debtor book. “Debt Factoring” is also referring to the same thing.

A Factoring facility usually entails every invoice going through the facility and the bank/lender providing credit control. However there are lots of different types of Factoring facilities to suit different businesses.

Basic Criteria For Debtor Factoring:

  • The company must be providing goods or services to other businesses (B2B)
  • The company must give credit terms (i.e 30 days to pay)
  • The debt must be readily collectable upon due date

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