CA Inter P6 · Chapter 9 · Question 7 of 9
Under a factoring arrangement 'with recourse', the risk of bad debts on the receivables assigned:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Stays with the client firm, which must make good to the factor any amounts customers fail to pay
Explanation
In recourse factoring, the factor provides finance and collection services, but the client keeps the credit risk and must reimburse the factor for bad debts. In non-recourse factoring, the factor absorbs bad debt losses and charges a higher fee.
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