factoring is a financial arrangement whereby a supplier of goods sells its trade receivables to the factor (bank) at discounted price for immediate cash payment. factoring is selling rights to the future payments. people and companies that are receiving money from contracts every some time may be in need of extra money - so they sell rights to receive those payments for cash hence factoring. this is done especially in construction business where companies are paid for parts of work completed instead of upfront payment. such a company will sell future payments for small percentage fee and will receive all money they need to continue the work without delays.