Given the right set of circumstances, a factoring company can provide operational capital using accounts receivables as collateral. This can be incredibly useful to assist in labor intensive contracts with strong creditworthy customers. Once securing an award for a large contract, new employees have to be brought on to do the work and they need to be paid regularly. A typical scenario would have the company putting on new staff to begin the work and over the next 30 days payroll will be paid from company reserves. When an invoice is produced, the factoring company wires funds directly to the company to help replenish their checking account. If the contract is going well, more staff is being placed and the elastic band that is the bank account gets stretched to the breaking point.
This scenario is also relevant where products are sold by manufacturers. Replace employees and payroll with suppliers and raw material. The point is, if the company funds can get 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, providing the cash flow to operate. Invoice factoring may be a useful tool. Not a crutch. It is a bridge to a better future.