Question

When the bank advances a large percentage of the invoice price of goods on a pro-rata basis when inventory is sold this is called:

a) Factoring
b) Collateralized loan
c) Microloan
d) Venture financing

Answer 1

The practice of a bank advancing a large percentage of the invoice price when inventory is sold is known as factoring. This method aids in better cash flow management for businesses by offering immediate funds against their receivables.

Step-by-step explanation:

When the bank advances a large percentage of the invoice price of goods on a pro-rata basis when inventory is sold, this is called factoring. Factoring involves a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. This provides the funds needed to pay suppliers and improves cash flow by receiving immediate payment for invoices, rather than waiting for the invoice payment terms to pass.