Which statement is true regarding factoring in business finance?

Factoring in business finance refers to the practice where a business sells its accounts receivable (invoices) to a third party, known as a factor, at a discount in order to obtain immediate cash. The true statement regarding this practice is that it is common in industries with low receivables turnover.

When businesses are in sectors where it takes a long time to collect receivables, they often face cash flow challenges. By utilizing factoring, companies can convert their outstanding invoices into cash more quickly. This approach allows businesses to maintain liquidity and meet their immediate financial obligations without waiting for customers to pay their invoices. Industries that frequently rely on factoring often include manufacturing, wholesaling, and service-based sectors, where the time between providing services or goods and receiving payment can be significant.

In contrast, some of the other statements do not align with the nature of factoring. For example, while factoring can benefit businesses of various sizes, it is not limited to large corporations; small and medium-sized enterprises often use factoring to manage cash flow. Moreover, factors mainly assess the creditworthiness of the businesses’ customers, rather than the business owner. Additionally, factoring is not a form of a loan; instead, it is a sale of receivables, which means