Where a company which supplies goods or services on credit assigns, by way of legal assignment, its unpaid invoices (that is, book debts or other receivables) to a finance company (factor) at a discount for immediate cash to provide working capital. The factor charges a fee and interest on the amount advanced. Generally, the factor assumes responsibility for collecting the debts and administering the company's sales ledger. Factoring can be:

Fees charged to the company by the factor for non-recourse factoring are typically higher than fees charged for recourse factoring, to reflect the higher risk assumed by the factor. Factoring is similar to invoice discounting.