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Q.When would a company use factoring?

A.There are many reasons to factor a purchase order or use factor. In the textile and apparel manufacturing, the use of factoring is very common. Factoring is an appropriate option where the business owner: (1) needs financing and cannot secure a traditional business loan (e.g., line of credit); or (2) wishes to pass off the risk and the cost of collecting its receivables from its customers and is willing to allow the factor to have control over a portion of its relationship with its customers. While factoring eliminates the time, expense, and risk related to collecting receivables, it is the factor that conducts the payment or collection process with the end-customer, which may be done in an unfriendly manner.

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