When Platinum Fitness sells its accounts receivable to a financial institution, it receives less than the full value of the accounts receivable. Which of the following is a benefit Platinum Fitness receives from this arrangement?
A) It will receive the money in one month instead of two months.
B) It will have more inventory than its competitors.
C) This will allow closer relationships with its customers.
D) The time and expense of collecting accounts shifts to the factor.
E) Platinum will be responsible for collecting the accounts.

Question

Quizplus · Accepted Answer

By selling its accounts receivable, Platinum Fitness can shift the time and expense of collecting accounts to the financial institution that buys them. This allows Platinum Fitness to focus on other aspects of its business and not waste resources on collections. However, it will receive less than the full value of the accounts receivable. Options A and B are not related to selling accounts receivable, and option C is not supported by the given information. Option E is incorrect, as Platinum Fitness will no longer be responsible for collecting the accounts once they are sold to a financial institution.

When Platinum Fitness Sells Its Accounts Receivable to a Financial