Factoring 12 September 2023

In the process of factoring, the seller sells its receivables to a financial institution (-----------------) at a discount.

• bank

• factor

• guarantor

• official receiver

Factoring falls within the broader term “--------------”; it is an alternative method of

seeking working capital finance.

• trade credit

• gross working capital

• credit line

• short-term finance

The two major components of working capital are -------------, and -------------.

• receivables, inventories

• cash, bank

• call money, treasury bills

• Advances paid, cash

There are three parties involved in factoring transaction: a) the ---------- who purchases the receivables, b) the ---------- who sells the receivables, and c) the --------- who has the obligation to make payment to the seller.

• factor, seller, debtor

• debtor, factor, seller

• seller, debtor, factor

• buyer, discounter, seller

The term “factor” comes from a Latin word ‘-------------------’ which means ‘to make’ or ‘to do.’

• facere

• facare

• fecere

• facara

Bill discounting differs from factoring in the sense that it is always with ----------------

• recourse

• deep discount

• high cost

• collateral

Factoring is a form of ------------ funding whereby factors purchase/ provide advances

against the accounts receivables and facilitates raising funds against receivables.

• asset-based

• credit-based

• guarantee-based

• liquidity-based

In traditional working capital financing from banks, the extent of financing depends upon the working capital ---------- which is current assets minus current liabilities (trade creditors).

• gap

• need

• gross

• sum

Factoring improves the debt ----------- in a company by getting recovery of the dues from such receivables within due dates.

• culture

• collection

• contribution

• receivables

Factoring enables clients to avoid increasing short-term debt burden and increases --------------------

• return on capital

• return on debt

• return on assets

• return on working capital