Factoring is a financial transaction in which a business sells its accounts receivable (i.e., invoices) to a third party at a discount. This allows the business to receive immediate cash instead of waiting for customers to pay their invoices, while the factor assumes the risk that the customers will not pay or will take longer than expected to do so. Factoring is typically used by small and medium-sized businesses that need access to quick cash flow but may have difficulty obtaining traditional bank loans.