When a firm factors its accounts receivable as opposed to pledging them, the firm will:
A)offer the lender the accounts receivable as collateral to the loan.
B)sell the accounts receivable at a discount to the lender.
C)in all cases, remain liable for any uncollected accounts sold to the lender.
D)None of the above

Question

Quizplus · Accepted Answer

When a firm factors its accounts receivable, it is selling them to the lender at a discount, typically around 80-90% of the face value. The lender assumes responsibility for collecting the receivables and takes on the risk of any uncollected accounts. This differs from pledging, where the firm uses the receivables as collateral for a loan but still retains responsibility for collecting them.

When a Firm Factors Its Accounts Receivable as Opposed to Pledging