Invoice factoring is not the solution for every type of business. Companies doing high volume, low margin sales can’t afford the cost of accounts receivable financing. These are usually businesses that import an item to sell to wholesalers and distributors like computer re-sellers, or telecommunications pre-paid calling cards.
If your gross profit margin on a sale is less than 15% then factoring invoices will not work for you. We actually prefer profit margins in excess of 20% to feel comfortable you will be able to afford the financing and continue to have suitable profit to grow the company. So when considering accounts receivable factoring, make sure you are aware how your profit margins will be affected.