The process of recovering debts by selling accounts receivable to an outside company is called what?

The process of recovering debts by selling accounts receivable to an outside company is called what?

• A. Factoring
• B. Debt Financing
• C. Equity Financing
• D. Liquidity Ratios

Answer: (A)

Factoring is the process of selling accounts receivable to an outside company to convert outstanding invoices into immediate cash. The outside firm, a factor, advances most of the invoice value and then collects payment from customers, often for a fee. This differs from debt financing, which is borrowing money, and equity financing, which involves selling ownership; and from liquidity ratios, which are metrics, not a method of recovering debts.

Factoring is the process of selling accounts receivable to an outside company to convert outstanding invoices into immediate cash. The outside firm, a factor, advances most of the invoice value and then collects payment from customers, often for a fee. This differs from debt financing, which is borrowing money, and equity financing, which involves selling ownership; and from liquidity ratios, which are metrics, not a method of recovering debts.