Factoring companies provide commercial financing by making advances on accounts receivable. An invoice is defined as a product and/or service that has been delivered / completed and accepted by a creditworthy customer (account debtor).
Examples of good invoice factoring scenarios;
– Growth businesses with wide fluctuations in receivable balances
– Or a business that is having a tough time keeping up with IRS 941 tax payments
– Service companies working for large creditworthy customers
– A business that is hiring staff on a new project and needs capital to meet payroll
– Corporations looking for capital without loss of shareholder equity
– A light manufacturing company placing continuous orders with a supplier
Examples where factoring would not be a fit;
– Start-ups who have a new contract but need up-front money to get it going will not qualify until they actually can produce an invoice
– Situations related to real estate property are usually unavailable for factoring.
– Factors cannot provide up-front capital to open a restaurant.
– Factors do not cash out annual contracts (money today for funds that will be collected over the next year)
– Factoring is not for any type of retail store that sells to everyday public consumers.