Question

Which of the sources of finance is expensive when the invoices are numerous and smaller in amount?

• A. Retained Earning
• B. Factoring
• C. Equity Shares
• D. Trade Credit

Answer 1

The correct option is B

Factoring

Factoring: It is an expense when the invoices are numerous and smaller in amount. The factor (the funding source) buys the right to collect on that invoice by agreeing to pay the invoice's face value less a discount--typically 2 to 6 percent. The factor pays 75 percent to 80 percent of the face value immediately and forwards the remainder (less the discount) when the customer pays.