What advantage do factors provide to businesses?

Factors provide a significant advantage to businesses by improving liquidity through immediate cash flow. This financial service allows businesses to sell their accounts receivable to a third party (the factor) at a discount in exchange for immediate cash. By doing so, companies can access funds quickly, which can be utilized to meet expenses, invest in new opportunities, or cover operational costs without having to wait for customers to pay their invoices. This immediate influx of cash enhances overall liquidity, allowing businesses to maintain a healthier cash flow and minimize the risk of cash shortages that could impede day-to-day operations.

The other options do not accurately capture the primary benefit of factoring. While reducing overall debt levels may be a desirable goal for some businesses, factoring typically involves taking on a financial arrangement that does not directly lower debt. Diversifying investment portfolios is more related to investment strategies rather than liquidity improvements linked to factoring. Similarly, while revenue augmentation from interest payments can occur in some financial strategies, it is not a core function or direct advantage that factoring provides to businesses. Hence, the enhancement of liquidity through immediate cash flow is the most accurate depiction of the advantage that factors offer.