What kinds of businesses should benefit from Invoice Factoring

Sterling Commercial Credit Invoice Factoring

April 2015

Invoice factoring means the sale of invoices at a discount in exchange for immediate cash. However, it needs to be seen which types of businesses should avail this form of business financing. Here is a list:


  • Rapidly growing companies: Companies which have witnessed a meteoric growth within a very short span of time may not have enough cash flow to increase their production.

  • Start Up companies: At times, it might become a little difficult for a new company to get a bank loan because a bank often demands a minimum of 3 years of proven track records. In such a scenario, invoice factoring can prove to be very useful.

  • Seasonal businesses: In certain businesses where sales and cash flow fluctuate during the year, banks might be reluctant to lend money.

  • Companies that cannot get a bank loan: Many businesses do not qualify for a bank loan for a plethora of reasons. Furthermore, there are many businesses which were given business lines of credit that have been subsequently taken away by the respective bank.

  • Timely tax payments: Business owners will certainly not want to fall behind on their taxes. Therein, invoice factoring come into play.

  • Companies which want to avoid debt: With the help of invoice factoring, businesses can avoid getting into a debt trap, by choosing invoice factoring.

  • Companies which have a low net worth: Certain businesses might have a low net worth. These companies will have a very difficult time in getting a bank loan. Again, invoice factoring may play a crucial role in this context.

  • Labor intensive industries: Certain businesses employ many personnel and need working capital in order to make payroll and pay for their employees’ payroll and insurance plans. Invoice factoring can help such businesses.

  • Companies that cannot collect funds from their debtors: A particular business which has to wait for 30, 60 or 90 days to obtain payments from its debtors prefers invoice factoring.

  • Credit rankings: Companies which want to increase their credit rankings also prefer invoice factoring.

  • Discounts from suppliers: Certain companies can get 2% to 5% discount from their suppliers if payment is made within 10 days or less. Invoice factoring can be prompt and thereby, lessen procedural hassles.


Industries which favor invoice factoring are:


  • Manufacturing industry

  • Wholesalers

  • Exporters

  • Oil and Gas

  • Transportation

  • Distributors

  • Staffing


Thus, it can be safely concluded that invoice factoring can go a long way when it comes to improving the prospects of business. However, a word of caution here – it is absolutely necessary to weigh all the options available for financing before one goes for invoice factoring. If a business is not generating high profits, invoice factoring is not the right option. But the aforementioned business options generally merit invoice factoring.