The process of ________ uses a firm's accounts receivable as collateral for a loan.

Question

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Factoring is the process of using a firm's accounts receivable as collateral for a loan. The firm sells its outstanding invoices to a third party, or factor, at a discount in exchange for immediate cash to use for its operations. This allows the firm to improve its cash flow and reduce the risk of bad debt. Establishing a line of credit, inventory financing, and revolving credit are all different types of financing options that may be used by a firm, but they do not involve using accounts receivable as collateral.

The Process of ________ Uses a Firm's Accounts Receivable as Collateral