If a firm actually sells its accounts receivable, the process is known as:

Question

Quizplus · Accepted Answer

Factoring refers to the process of selling accounts receivable to a third party, known as a factor, at a discounted rate in exchange for immediate cash. This allows the firm to improve its cash flow and transfer the risk of non-payment to the factor. The factor then assumes responsibility for collecting the receivables from the customers. Wholesale financing, floor planning, and field crediting are different types of financing arrangements that may not involve the sale of accounts receivable.

If a Firm Actually Sells Its Accounts Receivable, the Process