In what scenario would debt factoring be utilized?

Debt factoring is primarily used to manage cash flow by obtaining early payment on outstanding invoices. In this scenario, a business sells its accounts receivable (invoices) to a third party, known as a factor, at a discount. This process allows the business to access funds more quickly rather than waiting for customers to pay their bills.

By choosing this method, businesses can improve their liquidity, meet immediate financial obligations, and invest in other areas of their operations without the delay caused by the typical payment terms extended to customers. This strategy is particularly beneficial for companies with a significant amount of receivables and those facing cash flow challenges, as it enhances their cash position and operational flexibility.

Other options presented are not aligned with the purpose of debt factoring. Selling assets is more about liquidating property rather than leveraging receivables for cash. Applying for a government grant does not involve factoring invoices but rather seeks funds from government sources. Purchasing new equipment typically requires capital investment strategies that do not directly involve selling receivables. Thus, the correct scenario where debt factoring is utilized relates specifically to managing cash flow and securing early payments.