Factoring is a complete financial package that combines working capital financing, credit risk protection, accounts receivable bookkeeping and collection services.
It is offered under an agreement between the factor and a seller. Under the agreement, the factor purchases the seller's accounts receivable, normally without recourse, and assumes the responsibility for the debtor's financial ability to pay. If the debtor goes bankrupt or is unable to pay its debts for credit reasons, the factor will pay the seller. When the seller and the buyer are located in different countries the service is called "international factoring".
Domestic factoring activities started in the U.S.A. in the early part of the 20th century. International factoring activities started in the 1960's with European countries as the early pioneers and with FCI as the principal organisation to spread the use of international factoring all around the world.