Answers / Financial Due Diligence
How do you handle factoring/receivables financing in FDD?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Factoring with recourse is effectively hidden debt: the company has sold its receivables but retains the risk. In FDD: (1) add back the factored receivables to AR (NWC increases), (2) record the factoring obligation as debt-like. This corrects the optically low NWC and reveals the true financing structure. Without recourse factoring is cleaner but still needs disclosure.
WHAT INTERVIEWERS LISTEN FOR
- ✓Recourse factoring is hidden debt
- ✓Add back factored receivables to AR
- ✓Record factoring obligation as debt-like
- ✓Corrects optically low NWC
- ✓Non-recourse factoring still requires disclosure
COMMON MISTAKES
- ✗Treating recourse factoring as a true sale
- ✗Ignoring factoring in working capital adjustments
- ✗Failing to disclose factoring arrangements
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