Factoring your accounts receivable to get operational capital from your invoices can be a useful tool for the right situation. It is used primarily to assist in labor intensive contracts with strong creditworthy customers. If you land a nice contract, and bring on new employees to do the work you need to pay them regularly. You start out on day one working. Two weeks later you make payroll out of the company funds. A couple more weeks – more payroll, and you get to invoice the customer for the first months worth of work. You continue to work. 2 more weeks, more payroll. A couple more weeks and if you are extremely lucky the customer pays on time and you have the money to meet your payroll.
This also applies to products that are sold by manufacturers. Replace employees and payroll with suppliers and raw material. The point is, if the company funds can get you to the first invoice, the factoring company can assist the rest of the way. Each succeeding invoice can be financed as it is submitted to the customer, giving you the cash you need to operate.
By factoring you can pro-actively go after the larger contracts without having to be concerned about the cash flow crunch.