Which financial service involves selling invoices to a third party to improve cash flow?

Which financial service involves selling invoices to a third party to improve cash flow?

• A. Debentures
• B. Revenue expenditure
• C. Factoring
• D. Leasing

Answer: (C)

Factoring is a financial service where a business sells its invoices to a third party (a factor) to receive cash immediately, improving cash flow. The factor advances a portion of the invoice value, then collects payments from customers and charges a fee or discount. This speeds up liquidity by converting receivables into cash rather than waiting for customer payments. Debentures are long-term borrowings, not selling invoices. Revenue expenditure refers to costs shown in the income statement, not a financing service. Leasing offers the use of an asset through payments, not selling invoices.

Factoring is a financial service where a business sells its invoices to a third party (a factor) to receive cash immediately, improving cash flow. The factor advances a portion of the invoice value, then collects payments from customers and charges a fee or discount. This speeds up liquidity by converting receivables into cash rather than waiting for customer payments. Debentures are long-term borrowings, not selling invoices. Revenue expenditure refers to costs shown in the income statement, not a financing service. Leasing offers the use of an asset through payments, not selling invoices.