New RBI Grade B 2025 Notification will come Soon! Enroll Here

    Question

    How does factoring differ from bill discounting as a

    method of financing for MSMEs?       
    A Factoring involves MSMEs borrowing against assets, while bill discounting involves selling receivables at a discount to a financial institution. Correct Answer Incorrect Answer
    B Factoring requires MSMEs to provide collateral, while bill discounting does not. Correct Answer Incorrect Answer
    C Factoring involves the selling of accounts receivable, while bill discounting refers to MSMEs obtaining short-term loans based on future sales Correct Answer Incorrect Answer
    D Factoring involves MSMEs taking out long-term loans, while bill discounting is used for working capital financing Correct Answer Incorrect Answer
    E Both factoring and bill discounting are identical financial products and can be used interchangeably. Correct Answer Incorrect Answer

    Solution

    Factoring is a process in which MSMEs sell their accounts receivable (invoices) to a third party (factor) in exchange for immediate cash. Bill discounting , on the other hand, is when an MSME obtains a short-term loan by pledging their receivables, without selling them outright.

    Practice Next