What is factoring in a business context?

Factoring in a business context refers specifically to the sale of a company's receivables, which are outstanding invoices, to a third party, often called a factor, for immediate cash. This financial transaction allows businesses to improve their cash flow by converting owed amounts from customers into liquid funds without waiting for the usual payment terms to elapse. This practice is particularly beneficial for companies that may need quick capital to cover operating expenses or invest in new opportunities.

The other options, while relevant to business finance, do not capture the essence of factoring. A long-term investment strategy typically involves holding assets for an extended period with the expectation of growth, which is different from making immediate cash from sales of receivables. Determining creditworthiness is a process used to assess the reliability of a borrower, but it is not a mechanism for generating immediate revenue. Finally, the act of delaying payment to creditors refers to managing liabilities rather than the proactive step of selling receivables, which characterizes factoring.