All 23 Collections & Bad Debts questions
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How does dispute management connect to collections and bad debt? How do CECL and IFRS 9 change bad-debt estimation for receivables? What escalation options exist when internal collections fail? How do you handle receivables when a customer files for bankruptcy? How is bad-debt expense presented in the financial statements? How do you decide when to write off versus continue pursuing a debt? How do you calculate and interpret the bad-debt-to-sales ratio?
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Accounts Payable & Receivable › Collections & Bad Debts

What is factoring and how does it differ from a collections strategy?

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Answer

Factoring sells receivables to a factor for immediate cash (at a discount); the factor may handle collection. Recourse factoring leaves bad-debt risk with the seller; non-recourse transfers it to the factor. Unlike internal collections (recovering your own AR), factoring converts receivables to cash now, trading a fee for liquidity and possibly risk transfer.
Factor advances 90% of a $100,000 receivable now, remits the rest
less a fee on collection. Non-recourse: factor bears default risk.
Real-world example A fast-growing firm factors its receivables non-recourse to fund growth and offload collection and default risk.

Common follow-ups: Recourse vs non-recourse factoring? | How does factoring affect the balance sheet?

Credit Control Vendor Management Collections & Bad Debts
All 23 Collections & Bad Debts questions