Question

Is factoring a good option for an organization to control receivables? Please explain.

Answer 1

Factoring is the process through which company sells it Accounts receivable to a factor i.e. a financing company for cash. The account receivable once sold to factor becomes the asset of factor. This help business to get finance immediately instead of waiting for payment terms. Business to business transaction are best suited for factoring therefore B2B companies usually opt for Factoring

So Yes, Factoring is a good option to control receivables. Though there are certain factor that should be considered before opting for factoring like Payment Terms, Factoring expense, total credit sales etc.

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