Back to Study Group
Can be factoring or discounting
Raven-59294 - 08/19/2018, 7:30 pm

Given the scenario and terms provided in the question, the answer here could easily have been discounting as well. The difference is not clearly stated.

RAIN - 08/23/2018, 6:38 pm

Factoring involves selling receivables at a discount.

Discounting is the process of borrowing against receivables.

Raven-59294 - 08/25/2018, 4:34 am

I'm sorry, I can't quite understand it. Care to elaborate like I'm five, please? Thank you

RAIN - 08/27/2018, 1:25 pm

Selling the rights to collect the receivable is factoring. The buyer purchases at a discount, for example, $800,000 for $1,000,000 in receivables. The buyer then collects the receivables and keeps all the money.

With discounting, an amount is advanced against the invoice. The business continues to collect its own receivables and pays back the advance plus a fee when payment is received.