Question

Describe 'factoring ' and 'discounting of bills of exchange ' as methods of raising short-term finance. ​

Answer 1

Answer:

Factoring means selling the invoices raised to the customers to a third-party who make the payment immediately after reducing a discount. Bill Discounting provides immediate operating capital by borrowing against the invoice raised to the customers. Both are means to short-term capital for running operating expenses.

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Answer 2

Explanation:

The term factoring includes entire trade debts of a client. On the other hand, bill discounting includes only those trade debts which are supported by account receivables. In short, bill discounting, implies the advance against the bill, whereas factoring can be understood as the outright purchase of trade debt.

So, there exist a fine line of differences between bill discounting and factoring, which are explained in the article provided below.