Which process involves selling trade debts to a factoring firm for less than their full value?

Which process involves selling trade debts to a factoring firm for less than their full value?

• A. Factoring
• B. Tax credits
• C. Budget
• D. Intranet

Answer: (A)

Factoring is a financial arrangement where a business sells its trade receivables (debts owed by customers) to a factoring company at a discount. By paying less than the full value, the factor provides immediate cash to the seller and often takes over the task of collecting those debts. This boosts liquidity and speeds up cash flow, which is the key idea behind selling trade debts to a factor. The other options don’t fit this idea. Tax credits are reductions in tax payable, not selling debts. A Budget is a financial plan of income and expenditure. An Intranet is an internal network for sharing information within a company.

Factoring is a financial arrangement where a business sells its trade receivables (debts owed by customers) to a factoring company at a discount. By paying less than the full value, the factor provides immediate cash to the seller and often takes over the task of collecting those debts. This boosts liquidity and speeds up cash flow, which is the key idea behind selling trade debts to a factor.

The other options don’t fit this idea. Tax credits are reductions in tax payable, not selling debts. A Budget is a financial plan of income and expenditure. An Intranet is an internal network for sharing information within a company.