Which financial term refers to the selling of receivables for immediate cash?

Which financial term refers to the selling of receivables for immediate cash?

• A. Overdraft.
• B. Factoring.
• C. Debenture.
• D. Leasing.

Answer: (B)

The term that refers to the selling of receivables for immediate cash is factoring. This financial practice involves a business selling its accounts receivable (the money owed to them by customers) to a third party, known as a factor, at a discount. This allows the company to obtain immediate cash flow rather than waiting for the customers to pay their invoices, which can enhance liquidity and support ongoing operations or investments. Unlike options such as an overdraft, which is a credit facility allowing an account holder to withdraw more money than is available, or leasing, which refers to renting an asset instead of purchasing it outright, factoring specifically involves the conversion of receivables into cash. A debenture, on the other hand, is a type of long-term security that typically represents a loan made to a company, not a transaction involving receivables. Therefore, factoring is the most accurate term for this financial process.

The term that refers to the selling of receivables for immediate cash is factoring. This financial practice involves a business selling its accounts receivable (the money owed to them by customers) to a third party, known as a factor, at a discount. This allows the company to obtain immediate cash flow rather than waiting for the customers to pay their invoices, which can enhance liquidity and support ongoing operations or investments.

Unlike options such as an overdraft, which is a credit facility allowing an account holder to withdraw more money than is available, or leasing, which refers to renting an asset instead of purchasing it outright, factoring specifically involves the conversion of receivables into cash. A debenture, on the other hand, is a type of long-term security that typically represents a loan made to a company, not a transaction involving receivables. Therefore, factoring is the most accurate term for this financial process.