What is "lease factoring"?

Lease factoring involves the sale of lease payments or invoices to a third party, typically a financial institution or a specialized factoring company, in exchange for immediate cash. This process allows the original lessor to receive cash upfront rather than waiting for the lease payments to be made over time.

This practice can be particularly useful for businesses that need liquidity quickly, as it converts future payment obligations into immediate cash flow. The third party assumes the risk of collecting the remaining payments from the lessee. This financial tool helps lessors manage their cash flow more effectively, enabling them to reinvest or cover immediate expenses.

The other options, while related to leasing in some way, do not accurately describe lease factoring. Renegotiating lease terms pertains to adjusting conditions of existing leases rather than selling payment rights. Creating new lease agreements does not reflect the transaction aspect of factoring. Calculating residual values refers to estimating the worth of an asset at the end of a lease, which is also unrelated to the concept of factoring.