Finance Multiple Choice Help!!

[Zerr]

Hi, can anyone briefly describe me the solution of this question attached.
Answer is (a) but I somehow only understand (d)... also increase in assets wouldn't that mean increase in working capital too? 

[martinarena_]

Hi, can anyone briefly describe me the solution of this question attached.
Answer is (a) but I somehow only understand (d)... also increase in assets wouldn't that mean increase in working capital too?

Hey there!!
I'll try my best in explaining
Within the syllabus, factoring is a short term (debt) borrowing option and a strategy to improve cash flow.
Factoring involves selling your accounts receivable in order to get finances immediately. We know that by using factoring the full amount is not received, so that automatically crosses out B. We can also rule out C as having less liquidity is NOT beneficial. With D, although it does create immediate cash flow, it does not mean that current assets are worth more - in that as your accounts receivable is listed under current assets, by selling it you receive a lower amount back, so essentially, your current asset is worth less. Hence the answer is A (and just to quickly explain why -> working capital is the amount of money the business has for it's day to day operations; since accounts receivable is the money owed to the business, that means they don't actually the money yet - therefore, by using factoring to immediately inject finance, this will improve working capital - as money is now available for the business to use).

Hope that helps!