A financial service whereby a factor collects debts on behalf of other businesses, in return for a fee; the factor will pay cash upfront and chase debtors.

• A. External financing
• B. Overdrafts
• C. Factoring
• D. Debentures

Answer: (C)

Factoring is a financial service where a business sells its accounts receivable to a factor in exchange for immediate cash, and the factor then takes on the job of collecting those debts, charging a fee for this service. The description in the question—having a factor collect debts on behalf of other businesses, provide cash upfront, and pursue debtors—fits this exactly. It’s a way to improve liquidity and transfer credit-control responsibilities to the specialist.

Other options describe different funding or instruments. External financing is a broad term for funds from outside, but it doesn’t specify selling invoices or outsourcing debt collection. An overdraft is a flexible credit line used to cover short-term shortfalls, not tied to receivables. Debentures are long-term bonds used to borrow money, not services that collect debts or advance cash against invoices.