Factoring is a method of funding the business activities of a company. Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor). This allows the company to receive the funds in advance, earlier than the payments terms would stipulate. Factoring allows for better financial liquidity in a company. It is often linked to the insurance of trade receivables.