A firm needs spare cash because during economic downturns, sales may fall below expectations while outflows could prove higher than was budgeted.Firms sell their accounts receivable at a discount for the purpose of:

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Selling accounts receivable at a discount is a way to obtain short-term financing. This is a common practice used by firms to generate cash flow during economic downturns or in times of tight financial constraints. By selling their accounts receivable, firms are able to receive immediate cash for outstanding invoices, allowing them to meet their short-term financing needs. This practice is often referred to as factoring or invoice financing.

A Firm Needs Spare Cash Because During Economic Downturns, Sales