SQA Higher Business Practice Exam 2026 – The All-in-One Guide to Master Your Test and Succeed!

Factoring is indeed a form of short-term finance. It involves a business selling its accounts receivable, or invoices, to a third party (a factor) at a discount in exchange for immediate cash. This allows the business to improve its cash flow and gain access to funds without having to wait for customers to pay their outstanding bills. Factoring is typically used by businesses that need quick liquidity, making it a popular choice in scenarios where cash flow is critical.

In contrast, options such as bank loans may vary in duration but are often considered medium to long-term financing solutions, depending on the repayment terms. Leasing involves acquiring the use of an asset while making regular payments, which can also be longer-term in nature. Investments generally refer to allocating capital to generate returns over an extended period, making them unsuitable as a form of short-term finance. Thus, factoring stands out as a direct and effective method for obtaining short-term financing.