A financial service where a debt factor protects its customer against bad debts that they might incur.

• A. Factoring
• B. Non-recourse debt factoring
• C. Revenue expenditure
• D. Overdrafts

Answer: (B)

This question centers on how a financing service can transfer the risk of customer non-payment. In factoring, a business sells its invoices to a financial intermediary to get immediate cash. The key difference is who bears the risk if a debtor doesn’t pay. In non-recourse debt factoring, the factor takes on that credit risk, so the customer is protected from bad debts. That matches the description of a service that guards against bad debts. Regular factoring can leave the seller liable for unpaid invoices, so the protection isn’t guaranteed there. Revenue expenditure and overdrafts aren’t about insuring against bad debts or converting receivables into cash with risk transfer, so they don’t fit.