8. Which of the following statements is/are TRUE regarding the process of factor

Question

8. Which of the following statements is/are TRUE regarding the process of factoring? CIRCLE ALL THAT APPLY (2 points) a. Factoring is the process by which a finance company purchases the accounts receivable of a business at a discount to the face value of the amounts owed to that business by its customers. b. Factoring assists the business which sells its accounts receivable to the finance c. The risk of uncollectible accounts receivable falls upon the finance company, d. Businesses which sell their accounts receivable to finance companies avoid the company by providing cash which the business can use immediately without having to wait for its customers to pay what they owe. which must carefully examine the accounts before agreeing to purchase them. expense of maintaining a credit department and also avoid having to pressure their customers to pay what they owe.

Explanation / Answer

All the four options are true regarding factoring.

In factoring, a businessman sells his acount recievables to a finance company . The finance company immediately provides around 80% of the total account recievables to the businessman and gives the rest after the debtor makes the payment to the factor (factors deduct their commssion from this as well)

By selling their receivables to the factor, the businessman transfers the risk of non payment on the factor and the factor also takes up the responsibility to maintain the sales account for the businessman.

It becomes the responsibility of the factor then to collect the recievables on the due date and bear the burden of non payment unless specified otherwise in the agreement between the factor and the businessman

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