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      Question

      A type of finance in which a business would sell its

      accounts receivable (invoices) to a third party, is called?
      A Buyer’s credit Correct Answer Incorrect Answer
      B Securitisation Correct Answer Incorrect Answer
      C Working Capital Correct Answer Incorrect Answer
      D Bill Discounting Correct Answer Incorrect Answer
      E Factoring Correct Answer Incorrect Answer

      Solution

      Factoring is a type of finance in which a business would sell its accounts receivable (invoices) to a third party to meet its short-term liquidity needs. Under the transaction between both parties, the factor would pay the amount due on the invoices minus its commission or fees.

      The terms ‘invoice discounting’ or ‘bills discounting’ or ‘purchase of bills’ are all same. Invoice discounting is a source of working capital finance for the seller of goods on credit. Bill discounting is an arrangement whereby the seller recovers an amount of sales bill from the financial intermediaries before it is due. Such intermediaries charge a fee for the service.

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