Factoring
Short definition
Factoring is the assignment of trade receivables to a factor for cash today. It may be with recourse (risk stays) or without (risk transfers); accounting and covenant effects differ.
Detailed explanation
Cash received is face value less commission, interest and a retention. Without-recourse deals that pass a true-sale test take AR off the balance sheet; with-recourse is usually secured debt. DSO cosmetics down; customer risk stays or leaves per the contract.
The cost can look higher than a loan; in return you buy collections operations and line capacity. Concentration and past-due invoices cut the factoring limit.
Why it matters for the CFO
It extends runway, but if all-in cost and recourse are hidden, net debt is understated. The bank pack may require “gross debt including factoring”.
How to read it
Factoring balance / AR is the share assigned. If there is recourse, that share is hidden short-term debt.
Numerical example
Invoice 100 mn TL, 2% commission, 20% annual interest, 73-day tenor: interest ≈ 100 × 0.20 × 73/365 ≈ 4.0 mn TL; cash ≈ 100 − 2 − 4 = 94 mn TL (before retention).
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Definitions are educational. They are not investment, credit or tax advice.