What Is the Difference Between Factoring Accounts Receivable and Using

question 66

Short Answer

What is the difference between factoring accounts receivable and using accounts receivable as collateral for a short-term loan?
Factoring is the collateral used when issuing commercial paper.
There is no difference.
Factoring involves selling the accounts receivable instead of using them to obtain a loan.
Factoring accounts receivable is accomplished through a finance company whereas using them as collateral is arranged with a bank.
Factoring involves agreeing to repurchase accounts receivable at a future date instead of using them as collateral to obtain a loan.

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Definitions:

Fixed Input

An input in the production process that cannot be changed in the short term, such as buildings or land.

Long-Run Adjustment

A process in which firms adjust their inputs and outputs to achieve the optimal level of production and efficiency over an extended period.

Farmer

An individual engaged in the activity of agriculture, aiming to produce crops and raise livestock for consumption or sale.