This question asked candidates to discuss how invoice discounting and factoring could aid the management of trade receivables.

Invoice discounting is not the same as factoring and better answers did not make the mistake of discussing them as though they were. Answers making this mistake might, for example, wrongly ascribe to invoice discounting some of the benefits of factoring. It is also important to note that as the question asked how these two services could aid in the management of trade receivables, discussion of the problems associated with either service was not required and was not rewarded. Some candidates wasted valuable examination time in such a discussion, perhaps because they had memorised the answer to a previous examination question on this topic.

Better answers briefly defined invoice discounting and factoring, before discussing some of the benefits covered by the suggested answer. Accelerating cash inflow from trade receivables and helping to solve a cash shortage apply to both services. Potential benefits from factoring can include access to expertise in trade receivables management, a reduction in bad debts, a fall in trade receivables, saving or freeing up management time, and protection from irrecoverable debts.