What does factoring involve?

Factoring involves the process of selling accounts receivable for cash. This financial transaction allows businesses to improve their cash flow by converting outstanding invoices into immediate cash. Essentially, a company sells its receivables to a factoring company at a discount. This is particularly beneficial for businesses that need quick access to funds, as it helps them manage operational costs, invest in growth opportunities, or meet any immediate financial obligations.

In contrast, the other options refer to distinct activities that do not pertain to the practice of factoring. For example, increasing inventory levels is a strategy related to supply chain management, while asset appraisal involves evaluating the worth of assets to inform investments or sales. Investing in government bonds is a type of long-term investment strategy aimed at generating interest income. Each of these processes has its own purpose and implications, which are separate from the concept of factoring and its role in cash flow management.