A business sells its accounts receivable to improve cash flow - HSC - SSCE Business Studies - Question 10 - 2007 - Paper 1
Question 10
A business sells its accounts receivable to improve cash flow.
Which of the following best describes this strategy?
(A) Factoring
(B) Equity financing
(C) Sale and ... show full transcript
Worked Solution & Example Answer:A business sells its accounts receivable to improve cash flow - HSC - SSCE Business Studies - Question 10 - 2007 - Paper 1
Step 1
Identify the Strategy: A business sells its accounts receivable to improve cash flow.
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Answer
The strategy of selling accounts receivable is known as 'factoring'. In this process, a business sells its outstanding invoices to a third party (the factor) at a discount. This allows the business to receive immediate cash flow, improving liquidity without taking on additional debt.
Step 2
Choose the Best Description: Which of the following best describes this strategy?
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Answer
The correct option is (A) Factoring. This option accurately describes the strategy of selling accounts receivable to enhance cash flow.
