Q. Factoring is the financial service under which the 'factor' renders various services which includes : 
(a) Discounting of bills (with or without recourse ) and collection of the client's debt . Under this, the receivables on account of sale of goods or services are sold to the factor at a certain discount . The factor becomes  responsible for all credit control and debt collection from the buyer and provides protection against any bad debt losses to the firm . There are two methods of factoring --- recourse and non - recourse . Under   recourse factoring, the client is not protected against the risk of bad debts . On the other hand , the factor assumes the entire credit risk under non- recourse factoring i.e., full amount of invoice is paid to the client in the event of the debt becomes bad.   

Dear student,

Factoring is a process wherein factor (one who provides factoring services) provide service of discounting of bills. Under this the seller avail service from factor, in which factor bears responsibility of debt collection from the buyer. Under the recourse factoring method the seller bear the risk of bad debts while under the non recourse factoring the factor bear the risk of bad debt on behalf of seller.


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