Define the term 'debt factoring'.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [2] A definition that suggests that when a business sells its debts / invoices to a debt-factoring / third party company.
2. [1] The idea of selling debts only.
3. [3] Sound explanation of how leasing can improve the cash flow of a business.
4. [2] Limited explanation of how leasing can improve the cash flow of a business.
5. [1] Understanding of leasing.
6. [0] No creditable content.
7. Leasing - is obtaining the use of (but not necessarily purchasing) equipment or vehicles from a leasing or finance company – assets are acquired over the medium term paying a rental charge over a fixed period but not having to purchase the asset at the end of the period.
8. Leasing avoids the need to raise what may be significant amounts of capital to buy assets with a positive impact on net cash flow.
9. Leasing companies may maintain and update equipment with leasing.
10. Many answers refer to businesses leasing out unwanted assets and thus increasing cash flow which is equally acceptable.
11. Note: Sale and lease back approach is also acceptable.