When a business uses factoring, they improve their A - HSC - SSCE Business Studies - Question 18 - 2021 - Paper 1

When a business engages in factoring, they sell accounts receivable to a third party, often referred to as a factor, to receive immediate cash. This process improves cash flow by providing liquidity upfront. However, it typically comes at the cost of reduced profitability because the factor takes a fee, which is deducted from the total amount received from the receivables. Thus, while cash flow improves, the overall profitability is negatively impacted, aligning with option B.