Staple Stationery Supplies decides to use factoring to improve cash flow - HSC - SSCE Business Studies - Question 20 - 2003 - Paper 1
Question 20
Staple Stationery Supplies decides to use factoring to improve cash flow.
This strategy would involve which of the following?
(A) Selling accounts receivable to a co... show full transcript
Worked Solution & Example Answer:Staple Stationery Supplies decides to use factoring to improve cash flow - HSC - SSCE Business Studies - Question 20 - 2003 - Paper 1
Step 1
Selling accounts receivable to a collection agency
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Answer
This option involves transferring the rights to collect on accounts receivable to a collection agency. This aligns with factoring, as it means that the company gets immediate cash flow by selling its receivables.
Step 2
Selling goods on credit but with a specified date for payment
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This practice does not relate to factoring, as it involves extending credit rather than converting receivables to cash immediately.
Step 3
Selling the factors of production for cost, plus a small mark-up
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This option does not pertain to factoring, which is focused on receivables rather than the factors of production.
Step 4
Selling unused factory equipment to make up for the short-fall in cash flow
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Answer
While this can help with cash flow, it is not related to the practice of factoring which specifically involves accounts receivable.
