Kea owns a wholesale nursery that sells potted plants to large retail outlets. These sales are seasonal in nature. Kea cannot afford to wait for payment from the retailers as they often take 60 days or more to pay. Kea has only been in business for three years. Due to the nature of her business, Kea's bank is not willing to accept responsibility for collecting the receivables. The type of financing that is most appropriate for Kea's situation is:

Question

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Accounts receivable factoring is the most appropriate financing option for Kea's situation because it allows her to sell her accounts receivable (the money owed by the retailers) to a third party (the factor) at a discount. This provides her with immediate cash flow, which is crucial for her seasonal business and when she cannot afford to wait 60 days or more for payment. Factoring also does not require the bank to take on the responsibility of collecting the receivables, which suits her situation where the bank is unwilling to do so.

Kea Owns a Wholesale Nursery That Sells Potted Plants to Large