Define how does accounts receivable factoring work, Financial Management

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How does accounts receivable factoring work? What are the benefits to the two parties involved? What are the risks?

Factoring is while one firm sells accounts receivable that is AR to another. The purchasing firm is known as a factor. The factor creates a profit by purchasing the AR or Accounts receivables at a discount. Its risk is that some of the AR Accounts receivables may default. The selling firm gets the cash it needs.

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