A company might use accounts receivable factoring for a variety of reasons. This financing tool is only available to companies that sell or do work for other companies or government agencies – not retail or consumer based business models.
So why might a company turn to factoring? It may be that the company is relatively new, growing fast and needs a quick capital infusion to stay in front of the cash flow drain from new business. Because factoring offers capital without the burden of an outstanding liability or loan, the transaction is clean and simple.
Another reason might be that a company has come out of a rough period, a downturn, and is starting to gain momentum again. Factoring, by relying on the creditworthiness of the customer can easily provide unlimited capital at a crucial time where an established company is regaining its footing.
Because institutional banking is looking at historical profitability and liquid collateral, those criteria can sometimes be just out of reach for a company to secure the level of financing that would really help them. Getting a loan from a bank that is too small to help could choke off any other avenues to gain access to additional working capital.
Receivables factoring is meant to be a bridge, a temporary solution to build up the balance sheet, take care of outstanding problems like delinquent taxes in order to graduate to preferable bank financing. Allowing a company to begin to bid on larger contracts that eat up precious resources rather than turning opportunities away because the cash flow would hamper the growth or rebirth of a company is our factoring mission.