CAF-7 · Chapter 8 · Question 9 of 15
A company requires funds to finance its daily working capital needs. It decides to sell its outstanding trade receivables to a third-party financial institution at a discount, passing on the administration of the sales ledger to them. This method of financing is called:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Factoring
Explanation
Factoring involves a business selling its invoices (trade receivables) to a third party (the factor) at a discount for immediate cash, with the factor usually taking over the administration of the sales ledger.
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