Clearly distinguish between “factoring” and “invoice discounting” in the context of the management of debtors.

CPA-Financial-Management-Section-3 Revision kit

Factoring” and “invoicing discounting” factoring.

– Involves sale of debtors to a lender – Invoice discounting
called factor. – Involves use of debtors as a
– The factor/lender takes the collateral/security for short term responsibility for bad debts on debts borrowing
factored – the lender has no onus on bad debts.
– Lender/factor take the responsibility – The seller/borrower still have the of collection of debt. onus on debt collection.
– The buyer/debtor is notified of the – The buyer/debtor is not notified of factoring arrangement. the invoice discounting arrangement.

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