Only when that receivable is collected does cash come into the company that may be used for debt repayment. Few companies see sale of assets as a primary source of debt repayment. Companies do not generally sell division or large amounts of fixed assets in the ordinary course of business. In addition, while companies regularly collect accounts receivable, this cash is generally used to fund new accounts receivable. New debt or equity.
Many companies have a target level of debt as a permanent part of their capital structures.
These companies use new debt issues to repay maturing debt. If a company makes a strategic decision to reduce its leverage, it may issue equity to repay debt. Operating cash flow . Most companies beyond the start-up phase that are not experiencing high growth should generate positive cash flow from operations. While this cash may be used to purchase assets, some is generally reserved for dividends and debt service.