ACCA Financial Management (F9) Certification Practice Exam

What does Supply Chain Finance typically involve?

1. Direct equity investment

2. Factoring invoices in advance for cash

3. Long-term corporate bonds

4. Real estate investments

The correct answer is: Factoring invoices in advance for cash

Supply Chain Finance typically involves the practice of managing cash flow and working capital through financial instruments which enhance the efficiency of the supply chain. Factoring invoices in advance for cash is a key aspect of this, as it allows businesses to receive immediate cash based on their outstanding invoices. This financial process helps suppliers get paid more quickly, thus improving their liquidity and enabling them to continue operations without cash flow interruptions. When invoices are factored, a third-party financial institution purchases the receivables from the supplier at a discount. This provides the supplier with immediate access to funds rather than waiting for the customer to pay the invoice at a later date, often leading to better terms with suppliers and a healthier overall cash flow management in the supply chain. In contrast, direct equity investments, long-term corporate bonds, and real estate investments do not generally fall under the category of supply chain finance as they involve different strategies and focuses, such as investment for ownership, borrowing money for future payments, and property investment, respectively.