Factoring using accounts receivable financing for your capital needs should only be used as a temporary “bridge” toward securing ongoing institutional (bank) financing. Factoring your invoices to get through a growth period allows you to effectively maneuver through the tough cash squeeze stage as the business gains momentum. Access to capital is key. Going to the bank too early can be hazardous if you don’t qualify for the proper financing facility which could leave you high and dry.
Accessing capital by factoring invoices is a valuable solution until you get enough critical mass to qualify for the size of loan to offer stability. Factoring is a considered strategy to get to the next level, not the “end all be all” of your financing needs. Factoring is a necessary step that brings credibility to your operation by showing that you have the required resources and capabilities to deal with commercial financing.