Factoring is a form of short-term financing which involves
A) actually selling accounts receivable to a financial institution at a discount from face value.
B) pledging accounts receivable as collateral for a short-term loan.
C) using a percentage of current assets as collateral for a short-term loan.
D) selling inventory to a factor with an agreement to repurchase it at a set time in the future.

Question

Quizplus · Accepted Answer

Factoring involves selling accounts receivable to a financial institution at a discount from face value. The financial institution, known as a factor, then assumes responsibility for collecting the outstanding debt from the customers of the company that sold the accounts receivable. This provides immediate cash flow for the company and helps to mitigate the risk of bad debt.

Factoring Is a Form of Short-Term Financing Which Involves