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CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)

Which of the following is a recognised technique or arrangement for managing trade payables in which the buyer's bank pays the supplier early against the buyer's approved invoices and the buyer settles with the bank on the due date?

The arrangement is supply chain finance, also called reverse factoring. The buyer approves supplier invoices, a bank or financier pays the supplier early at a discount, and the buyer repays the financier on the original due date, extending its effective payables period.

  1. ASupply chain finance (reverse factoring)Correct
  2. BForfaiting of export receivables
  3. CDebt securitisation of loan assets
  4. DSale and leaseback of fixed assets

Explanation

In reverse factoring the buyer approves invoices, the financier pays the supplier early at a discount, and the buyer pays the financier at maturity. Forfaiting concerns export receivables, securitisation concerns pooled assets, and sale and leaseback concerns fixed assets.

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