What is a factor in accounts receivable?

In the context of accounts receivable, a factor refers to a third party that provides financing against a company's accounts receivable. This practice is known as factoring, where the company sells its receivables to the factor at a discount in exchange for immediate cash. This can be advantageous for businesses that need quick access to liquidity without waiting for the payment terms of their invoices to conclude.

The role of the factor involves not only providing funds to the seller but also potentially managing the collection of receivables, allowing the seller to focus on other aspects of their operations. This financial arrangement can streamline cash flow and help businesses handle operational expenses or invest in growth opportunities without the delays associated with traditional credit sales.

Other options describe different aspects of business operations but do not reflect the specific role of a factor in accounts receivable management. For instance, while a buyer of goods is essential in the sales process, they do not represent the financing aspect of the transaction. Additionally, software programs used for billing or electronic payment methods are tools that facilitate transactions but do not involve financing as a factor does.