Which service provides protection against bad debts for a client in a debt factoring arrangement?

• A. Factoring
• B. Non-recourse debt factoring
• C. Leasing
• D. Debentures

Answer: (B)

Protection against bad debts in a debt factoring arrangement comes from non-recourse debt factoring. In this setup, a business sells its invoices to a factor and gets cash upfront. If a debtor doesn’t pay, the loss is borne by the factor under non-recourse terms, shielding the seller from bad debt risk (though there may be exclusions like disputed amounts or certain debtors). By comparison, standard factoring can be on a recourse basis, where the seller still bears some risk. Leasing involves renting equipment, and debentures are bonds issued to raise funds—neither provides protection against customer defaults in factoring.