If a firm starts selling its accounts receivable to a factor, how will the firm's cash cycle change?
A) The firm will increase its cash cycle since it will now have to wait longer for payment.
B) The firm will decrease its cash cycle since accounts receivable is reduced.
C) Depending on conditions, the cash cycle could either increase or decrease.
D) There will be no change.

Question

Quizplus · Accepted Answer

Selling accounts receivable to a factor typically results in immediate cash inflow, reducing the time it takes for the firm to convert its receivables into cash. This action shortens the cash conversion cycle by decreasing the accounts receivable days.

If a Firm Starts Selling Its Accounts Receivable to a Factor