Which one of the following is a method of converting a non-productive, inactive asset (ie. Receivable) into a productive asset (viz, cash) by selling receivables to a company that specializes in their collection and administration

Correct option is D

Factoring is a financial transaction in which a business sells its accounts receivable (invoices) to a third party, called a factor, at a discount in exchange for immediate cash. The factor then assumes responsibility for collecting the outstanding invoices from the business's customers and is paid a fee or commission for its services.
Information Booster
Factoring involves:
Immediate Cash Flow: Businesses sell receivables to a factor at a discount.
Reduced Administrative Burden: The factor takes over credit control and debt collection.
Non-recourse Options: Factors assume the risk of bad debts under certain agreements, offering additional security to the business.
Additional Knowledge
(a) Bills Discounting: This is a financing activity where a business sells its bill of exchange to a bank or financial institution at a discount before the maturity date to obtain funds. Unlike factoring, it is limited to trade bills.
(b) Underwriting: Refers to a service where a financial entity (e.g., an investment bank) guarantees the sale of a company's securities by purchasing them if they aren't sold to the public during an offering.
(c) Guaranteeing: Involves a third party ensuring the payment or performance of an obligation by the primary debtor. It does not involve buying receivables or providing immediate liquidity.