Practice Quiz

Consulting Case Interview Practice Questions

Category - Strategy

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Low-on-Cash Inc. decides to use factoring to improve cash flow. This strategy would involve which of the following?
  1. Selling accounts receivable to a collection agency or a bank
  2. Selling goods on credit but with a specified date for payment
  3. Selling the factors of production for cost, plus a small mark-up
  4. Selling unused factory equipment to make up for the short-fall in cash flow
Explanation
Answer: a - Factoring receivables means selling accounts receivable to a collection agency or bank. Usually this occurs at a discount in exchange for the immediate liquidity of cash.

Key Takeaway: Factoring accounts receiving is a temporary solution to an immediate cash flow crunch. It is usually done to buy a management team time.
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