Factoring is when you sell the debtor balances you have (your accounts receivable accounts) to a factor, a company that will give you a percentage up front but will charge you a service fee and an interest fee.
It’s a very popular way for companies to discount (receive earlier) the amounts that are owed from their customers when cash is needed. Because of the charges, it should not be used as a long term approach to get cash for your company.
A company should try to provide incentives to their customers to pay on time (or even earlier) by giving discounts for example. On the other hand, a factor can be a very helpful solution if your company has run out of cash and you have a decent number of customer invoices that will be due in some months from now.
It’s also worth noting that the interest and the “service charge” that you will pay (to the factor) depends on the credit worthiness of your customers since the risk of your customers not repaying you is what it’s taken into account by the factor (rather how well your company is doing).