A factor purchases an entity's accounts receivable and assumes the risk of collection. The seller receives money immediately to reinvest in new inventories. The financing cost is usually high: about 2 points or more above prime, plus a fee for collection. Factoring has been traditional in the textile industry for years, and recently companies in many industries have found it an efficient means of operation. An entity that uses a factor can eliminate its credit department, accounts receivable staff, and bad debts. These reductions in costs can more than offset the fee charged by the factor, which can often operate more efficiently than its clients because of the specialized nature of its service.

An increase in revenue and a decrease in costs will increase the ROI numerator. A decrease in investment will decrease the denominator. The ROI must increase in this situation.

Like ordinary shares but unlike bonds), preference shares have no maturity date, although certain preference shares transient preference shares) must be redeemed within a short time e.g., 5 to 10 years). Like bonds but unlike ordinary shares), preference shares have a fixed periodic payment. The fixed payment is in the form of a stated dividend in the case of the preference shares and interest payments in the case of bonds. However, preference dividends, unlike interest, do not become an obligation unless declared.

The seven elements of risk are threat events, single loss exposure value, frequency, uncertainty. safeguards and controls, safeguard and control costs, and cost/benefit or ROI analysis. Timing, which is not a risk element, is when a risk may occur_ It is different from frequency, which is how often an uncertain event might occur.