In real time, factoring invoices doesn’t work for every business situation. Sometimes a company with a business model that is high volume – low margin sales, shouldn’t consider the cost of accounts receivable financing. Typically these are businesses who might import an item to sell to wholesalers and distributors like computer or software re-sellers. Any type of company that relies on thin margins is not a good candidate for factoring. Unless there is a services component bundled into the sale, where services can be marked up with a reasonable profit margin then that might work.
If your business gross profit margin on a sale is less than 20%, then invoice factoring is probably not a very good option for your working capital. We want to make sure you will be able to afford the financing and continue to have suitable profit to grow the company. So when considering factoring, consider your profit margins.