The financing cost is most closely tied to the creditworthiness of a firm's customers is factoring.
What is factoring?
Factoring is the sale of recipients without recourse; that is the risk that the company's customers do not pay or do not pay on time is borne by the factor that you end up buying. Thus, the amount paid by the originator per dollar of receivables is lower (higher discount or interest rate) if the creditworthiness of the company's credit customers is lower.
There are mainly two types of factoring financing
- non-regressive factoring.
A factoring company purchases the company's outstanding invoices for a factoring fee, which is deducted when full payment is received from the customer.
To learn more about factoring, refer;
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