What financing option involves selling lease receivables to a third party to enhance cash flow?

The correct response is that lease factoring involves selling lease receivables to a third party to enhance cash flow. This financial practice enables businesses to obtain immediate cash by transferring their rights to receive future lease payments from lessees to a third party, typically a factoring company. The factoring company pays the business a discounted amount for these receivables up front, providing immediate liquidity that can be used for various operational needs.

In lease factoring, the third party assumes the responsibility of collecting the lease payments from the lessees, allowing the original business to relieve itself of the cash flow uncertainty while still retaining its customer relationships. This can be particularly beneficial for businesses that require immediate cash for growth opportunities or to manage day-to-day expenses without waiting for lessees to fulfill their lease obligations over time.

Understanding the nuances of lease factoring is crucial because it distinguishes itself from other financing options, which may not directly involve the sale of receivables. Cash flow leasing typically refers to structuring leases to optimize cash flow but does not involve selling receivables. Lease underwriting is the process of evaluating a lease transaction to assess risks and approval, while lease refinancing involves replacing an existing lease with a new one, often with different terms or conditions. These other options do not