Answer (B) is correct . A draft is a three-party instrument in which one person (the drawer) orders a second person (the drawee) to pay money to a third person (the payee). A check is the most common form of draft. It is an instrument payable on demand in which the drawee is a bank. Consequently, a draft can be used to delay the outflow of cash. A draft can be dated on the due date of an invoice and will not be processed by the drawee until that date, thereby eliminating the necessity of writing a check earlier than the due date or using an EFT. Thus, the outflow is delayed until the check clears the drawee bank.
Answer (A) is incorrect because Factoring is the sale of receivables and therefore concerns cash inflows, not outflows.
Answer (C) is incorrect because A lockbox system is a means of accelerating cash inflows.
Answer (D) is incorrect because An electronic funds transfer results in an immediate deduction from the payor’s bank account, thereby eliminating float.
|
