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ACCA Applied Skills · Financial Management · Finance for small- and medium-sized entities (SMEs)

Which of the following is a feature of invoice discounting, as opposed to factoring, for an SME?

Invoice discounting is usually confidential: the SME keeps managing its sales ledger and collecting from customers, while the finance provider advances a proportion of invoice value. Factoring, by contrast, normally involves the factor administering the ledger and collecting payment directly.

  1. AThe factor takes over running of the sales ledger and collects from customers directly
  2. BIt is always provided without recourse so the SME is protected from bad debts
  3. CIt is usually confidential, with the SME continuing to collect payments from customersCorrect
  4. DIt removes the need for any security over receivables

Explanation

With invoice discounting the business keeps control of its sales ledger and collection, and customers are normally unaware of the arrangement. Ledger management and collection by the provider describe factoring. Invoice discounting is typically with recourse.

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