Why might a company choose to factor its receivables?

A company might choose to factor its receivables primarily to obtain immediate cash flow. This financing strategy involves selling accounts receivable to a third party, known as a factor, at a discount in exchange for quick access to cash. Companies often face circumstances where they need liquid funds to meet operational expenses, invest in new opportunities, or manage unforeseen costs.

By factoring receivables, the company can accelerate its cash inflow rather than waiting for customers to pay their invoices, which can sometimes take weeks or months. This immediate cash flow enables better management of daily operations and can enhance the company's ability to take advantage of timely opportunities without incurring additional debt.

The other options do not adequately explain the primary motivation behind factoring receivables. While eliminating bank loans or reducing operational costs could be indirect benefits, they are not the central reason for this financial decision. Similarly, increasing leverage through secured loans does not align with the immediate cash flow benefits that factoring provides. Thus, obtaining immediate cash flow is the most compelling reason for a company to factor its receivables.