It should be noted that the current slowdown in the economy has caused a severe commercial financing bottleneck when it comes to securing accounts receivable factoring. The problem is – what to do with existing bank financing? A typical scenario involves a company which already has a line of credit from a bank and needs more capital to grow. In the time it takes for the company to get around to asking for an increased credit limit and the bank figures out whether to approve it, their financial condition begins to decline and with it, the possibility for increased credit.
So in these situations bankers are suggesting the company contact factoring companies for additional capital. At this point invoice factoring is available only to companies whose receivables are clear on their U.C.C. (see UCC) If the bank has secured all the business assets as collateral for their loan, now the bank loan must be paid off to free up the collateral in order for the invoice factoring to commence. Strategically this is a major problem, the business is growing but starving for cash, it cannot afford to pay off the old loan, and therefore cannot gain access to more capital. Without access to additional capital the business starves its growth.