The diagram shows the finance route used by a farmer who produces bottled fruit juice. A supermarket has placed a seasonal order, but the farmer needs bottl...
Question 1 Report
The diagram shows the finance route used by a farmer who produces bottled fruit juice. A supermarket has placed a seasonal order, but the farmer needs bottles and labels before receiving payment for the sales invoice.
(a) Identify the source of finance shown in Fig. 1. [1]
(b) Explain what the factoring firm provides to the farmer. [1]
(c) Which business is expected to pay the invoice eventually? [1]
Answer Details
(a) The source of finance is factoring, also called invoice finance. [1]
(b) The factoring firm provides cash before the supermarket pays the invoice. In effect, it gives the farmer an advance against the invoice value. [1]
(c) The supermarket is expected to pay the invoice eventually. The factoring firm later collects that payment. [1]
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