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Factoring of accounts receivable

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Define the factoring of accounts receivables. How does factoring affect cash management? Explain the difference between factoring and accounts receivable financing.

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The solution explains the factoring of accounts receivable and its effect on cash management.

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In factoring of accounts receivables, the accounts receivables are sold to a factor which then provides cash to the company. Thus through the use of factoring the company is able to speed up its cash collection which would otherwise be collected when the credit period was over. In factoring the factor becomes the owner of the receivables and the debtor would be required to pay directly to the factor now and not to the business which originated the sale. Factoring could be either with recourse or without recourse. In a with recourse ...

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