A company sells its accounts receivable to a financial institution that is in the business of buying accounts receivable at a discount. This sale is known as which of the following activities?
A) pledging
B) bartering
C) factoring
D) collateralizing

Question

Quizplus · Accepted Answer

This activity is known as factoring, which involves selling accounts receivable to a third-party (the financial institution) at a discount. This allows the company to receive immediate cash for their outstanding invoices, while the financial institution takes ownership of the accounts receivable and collects payment from the customers. Pledging refers to using accounts receivable as collateral for a loan, bartering involves exchanging goods or services for other goods or services without the use of money, and collateralizing refers to using an asset (such as accounts receivable) as collateral for a loan.

A Company Sells Its Accounts Receivable to a Financial Institution