In a factoring arrangement, the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables.

Question

Quizplus · Accepted Answer

This is correct. The third party, or factor, will purchase the receivables from the company at a discounted price in order to make a profit. They will then collect the full amount owed from the debtor, making the difference between what they paid for the receivables and what they collected their profit.

In a Factoring Arrangement, the Third Party Makes Its Money