• Creating new financial instruments backed with various types of Accounts Receivable is called factoring.

In finance, factoring is an alternative approach that a business applies to access funds by trading the accounts receivables to a third party referred to as a factoring company. A firm may find itself in need of additional financing and may fail to qualify for a bank loan. The accounts receivable factoring enables the business to acquire funds by using its accounts receivables as collateral. This process allows a business to access finances tied up in accounts receivables.