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
Factoring involves selling accounts receivable to a third party, typically a collection agency, in exchange for immediate cash. This allows the company to improve its cash flow by converting receivables into cash quickly.
Step 2
Selling goods on credit but with a specified date for payment
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Answer
While this approach helps with sales, it does not involve factoring, as it doesn't provide immediate cash but rather extends the payment period.
Step 3
Selling the factors of production for cost, plus a small mark-up
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Answer
This option does not pertain to factoring; it focuses on production costs rather than the sale of receivables.
Step 4
Selling unused factory equipment to make up for the short-fall in cash flow
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This strategy is different from factoring, as it involves liquidating assets rather than selling accounts receivable.
