Question

. A Factoring company is an institution that:

1. Handles multiple lockboxes for a company
2. The purchases raw material inventories for scrap
3. The buys a company’s accounts receivable accounts

Answer 1

Answer: Option C

A factoring company is the one which buys a company's account receivable accounts. These comapnies pay for the receivables before they are due for payment but at a discount. For instance if account receivable of company A  is 500 which is due after a month and it sells the same to a factroing company B and company B pay slets say at 10% discount then Company A will get 450 instantly. Later on company B will recover the Receivables of 500.

Advantage of this is that Company do not have to wait for the payment and can receive the payment much earlier.Another advanatge is company is safe from Bad debts because comapny receives the same before they are due for payment.