By utilizing invoice factoring as a commercial finance tool to increase your working capital accessibility, after determining that the need is there, applying for and securing a facility is an important decision.
Factoring is only suited for businesses selling to other more creditworthy companies. It is meant to be used to leverage completed contracts with your customers. Since the customer has received their order you are waiting to get paid. This time gap is the cause and solution that receivable financing solves.
Because many business owners are not familiar with what or how factoring works, they tend to look first at conventional bank lending. This can be a mistake if the historical revenue of the company will not suffice when applying for the size of loan which ultimately will produce the proper funding mechanism to allow for the potential growth of the business.
In most cases it is best to look at factoring as the potential better solution prior to beginning work on a new large contract that will create cash flow worries. This is especially true if your business model shows fluctuating revenue periods. If there are wide variance between the month to month income, you will find this is definitely a good situation to bring in the help of a factoring company.
The purpose of the factoring company is to smooth out periods where having to pay for supplies or payroll make it difficult to perform optimally on those bigger contracts.
So the best time to consider invoice factoring is when the bank is not ready to lend due to considerations related to the economy and financial challenges a company is facing.
Company: Creative Capital Associates Factoring Co. Nov 30, 2015