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:

  1. 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.
  2. 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.
  3. Seasonal businesses: In certain businesses where sales and cash flow fluctuate during the year, banks might be reluctant to lend money.
  4. 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.
  5. Timely tax payments: Business owners will certainly not want to fall behind on their taxes. Therein, invoice factoring come into play.
  6. Companies which want to avoid debt: With the help of invoice factoring, businesses can avoid getting into a debt trap, by choosing invoice factoring.
  7. 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.
  8. 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.
  9. 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.
  10. Credit rankings: Companies which want to increase their credit rankings also prefer invoice factoring.
  11. 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:

  1. Manufacturing industry
  2. Wholesalers
  3. Exporters
  4. Oil and Gas
  5. Transportation
  6. Distributors
  7. 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.