CMA Intermediate · Financial Management and Business Data Analytics · Receivable Management
In receivables financing, how does invoice discounting differ from factoring?
In invoice discounting the client retains control of the sales ledger and collection, and customers are usually not told about the arrangement, so it is confidential. Factoring normally has the factor maintaining the ledger and collecting dues, often also covering credit protection.
- AThe client keeps control of sales ledger and collection, and the arrangement is usually confidentialCorrect
- BThe financier maintains the sales ledger and collects from customers
- CThe financier always bears the credit risk of the customer
- DThe customer is notified and pays directly to the financier
Explanation
In invoice discounting the client continues to administer the sales ledger and collect from debtors, usually without notifying customers. In factoring, the factor typically manages the ledger and collections. Credit risk is generally not transferred in discounting.
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