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Factoring

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Factoring

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
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  • May 20, 2022 at 9:04 pm #656096
    Varun.J.Thakkar
    Participant
    • Topics: 75
    • Replies: 112
    • ☆☆

    Although factor finance is generally more expensive than a bank overdraft, the
    funding level is linked to the company’s volume of sales. This can help to finance
    expansion and protects the company against overtrading.

    Sir can u pls explain how factor finance can protect a company against overtrading?
    Thank you

    May 21, 2022 at 8:02 am #656112
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    As explained in my lectures, overtrading is when the company is expanding quickly without the necessary increase in the short-term funding. With factoring, the short-term financing from the factor is automatically increasing with the level of sales.

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