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Module: General Practice

Q171: In the context of "Factoring" services for SMEs, which of the following statements is NOT correct?

A
It involves the sale of accounts receivable (invoices) to a third party (Factor) for immediate cash.
B
In "Non-Recourse Factoring," the credit risk of the debtor (buyer) default is borne by the Factor.
C
Factoring is strictly defined as a loan against the security of bills, identical to Bill Discounting.
D
The Factoring Regulation (Amendment) Act allows NBFCs to undertake factoring business if they meet specific criteria.
✅ Correct Answer: C
Option C is incorrect because Factoring is NOT a loan; it is a purchase of assets (receivables). The key difference is that Bill Discounting is borrowing money against a bill (debt), whereas Factoring is selling the bill itself (asset sale). Additionally, Factoring includes services like sales ledger administration, collection, and credit protection.
In Non-Recourse factoring (Option B), if the buyer doesn't pay, the Factor takes the loss, not the SME.
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