What is a defining characteristic of factoring companies?

Factoring companies are primarily engaged in the practice of purchasing accounts receivable from businesses at a discounted rate. A defining characteristic of these companies is that they assume the risk associated with the accounts they purchase. This means that if the accounts receivable are unpaid, the factoring company absorbs the loss, rather than the original business. This arrangement allows businesses to receive immediate cash flow, which can be crucial for their operations, rather than waiting for their clients to pay their invoices.

Other options do not accurately reflect the nature of factoring companies. For instance, they do not exclusively provide long-term loans; their business model revolves around short-term financing through the sale of receivables. Additionally, factoring companies often have varied rates that may not necessarily be the lowest in the market, as their pricing structure is influenced by the risk involved with the receivables they are purchasing. Lastly, factoring companies are not limited to corporate clients; they can also work with small businesses and a variety of industries, making them accessible to many types of businesses in need of cash flow solutions.