Factoring allows the exporter to be more competitive by selling on open account rather than by means of the more costly letter of credit method.
Answer the following statement true (T) or false (F)
True
Factoring is the sale of an exporter's accounts receivable on ordinary goods, with the balance of the payment due upon delivery or soon after. Factoring permits the exporter to be more competitive by selling on open account rather than by the more costly letter-of-credit method. This financing technique passes the risk to the factor, which may be a factoring house or a special department in a commercial bank. Under the export factoring arrangement, the seller passes its export order to the factor for approval of the importer's credit risk. Once the order has been approved, the exporter has complete protection against bad debts and political risk. The importer pays the factor, which, in effect, acts as the exporter's credit and collection department. The period of settlement generally is under 180 days.
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Answer the following statement true (T) or false (F)