If you are going to consider invoice factoring to be realistic as an ongoing working capital solution, you must know the effective profit margin for your work. It’s always important to know what activities in a business yield the best margins, but for accounts receivable financing to be of any help the gross profit margin should be greater than 20%.
This does not mean invoice factoring costs this much, the factoring company wants to insure that beyond the costs associated with factoring, the client will still be making a profit. A healthy profit margin will allow for incidental problem accounts or extended payment terms and the fees associated.
Unless the factoring company feels confident the client will still be making a profit on their sales, the factor will pass on the relationship. So be advised accounts receivable factoring is not a proper fit for very low margin high volume sales operations.