What does Factoring involve in the context of short-term debt?

Factoring involves selling accounts receivable at a discount for immediate cash. This is a financial practice where a business transfers its receivables (money owed by customers) to a third party, known as a factor, in exchange for a quick influx of cash. By utilizing factoring, a business can enhance its liquidity without taking on new debt, allowing it to meet immediate financial obligations or invest in growth opportunities.

In this context, the underlying principle is that while the business sacrifices some profit by selling the receivables at a discount, it gains immediate funds that can be crucial for cash flow management. This can be particularly useful for businesses experiencing slow customer payment cycles, helping them maintain operations and stabilize finances.

The other options do not accurately represent the concept of factoring. Leasing machinery pertains to acquiring assets without immediate cash outflow, selling company assets focuses on liquidation rather than receivables, and borrowing against future sales involves taking on debt rather than generating cash through the sale of existing receivables.