Factoring
The exact factoring contract determines which services are supplied and who bears which risks. An advance is usually a percentage of eligible receivables, with interest charged on the funds advanced and a separate service fee. Compare financing and fees with savings in administration, bad debts and collection time, including any funding needed for the unadvanced balance. With-recourse factoring leaves relevant customer default exposure with the business; non-recourse terms transfer specified credit risks subject to exclusions and conditions. Factoring does not automatically eliminate disputes, dilution or every form of loss.
Worked example
Eligible receivables are $100,000 and the factor advances 80%, so immediate finance is $80,000. At 9% annual interest for a full year, interest would be $7,200, plus any service fee. The remaining $20,000 is not automatically available cash and may still need financing until settlement.
Common mistake
Charging advance interest on the entire receivables balance or assuming non-recourse terms cover every possible customer dispute.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |