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Q.What is factoring?

A.In a traditional factoring arrangement, a company will sell its receivables to another company (a "factor") at a discount, in exchange for advance money. To determine the amount of money to be advanced, the factor will first assess the creditworthiness of the company's customers. The factor will then assign a price to the receivables for each of the company's customers. If the business agrees to the terms, the business will then assign its receivables to the factor in return for a single payment. Payments by the business' customers will then go directly to the factor, who now owns the receivables. Because the factor then owns the receivables, the factor generally provides all the required credit, collection, and accounting services necessary to collect the receivables.

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