Factoring is a financial transaction where a business sells its invoices to a third party (called a factor) at a discount. Factoring helps resolve cash flow issues since the factor (third party that buys the invoices) gives them cash. The factor then deals directly with the client to collect the money. Once customers pay, the factor deducts the cash given to the business owner, their fee for lending the money and then, if there is money left over, gives that to the business owner.