Factoring is a method primarily used for what purpose?

Factoring is a financial transaction in which a business sells its accounts receivable to a third party, known as a factor, at a discount in exchange for immediate cash. This method is primarily used to recover debts, as it allows businesses to convert outstanding invoices into cash quickly. By selling their receivables, companies can improve their cash flow, which is crucial for day-to-day operations and can help them address immediate financial obligations, such as paying suppliers or employees.

In this way, factoring serves as a valuable tool for businesses that need to navigate cash flow challenges or manage delays in receiving payments from customers. While this process does have implications for expenses, sales revenue, and inventory management, its primary purpose focuses on the recovery of debts owed to the business through the conversion of receivables into liquid assets. This financial strategy can help ensure that a business maintains a steady operational flow despite potential cash flow hiccups.