 There are many reasons why companies factor their invoices. Start up and rapid growing mature companies had a major source of revenue. This was an aid for them. It means that their receivables were managed in a right way and the cash flow was used to fund growth. But there are other reasons.
Incapacity of a Company to be Bankable. It means that a company has to be new, have credit or tax problems, but it also might be "too thin" for consideration by usual bankers. Factors unceremoniously working, try to find an adequate and economical solution for our companies of all sizes.
Bankruptcy of a Company. Because of valid reasons, even a fecund business may to file bankruptcy. Thus, while usual bank lenders will not think over them, factors may.
To Get Larger Contracts. For performing where they might not have or been able to, a company can buy materials and labor necessary, but only factoring receivables.
To Qualify for Discounts. There is a chance for a company to save enough by purchasing bulk to more than pay for the factoring cost. It is possible to do by buying in larger quantities. Include early pay options and this can wipe out all factoring cost.
To Reduce Clerical Overhead. A factor can provide many services but companies that are very simply stated are not able to fulfill all those services.
Direct Focus. While a factoring company manages collection, clients can focus on looking ahead.
Thus factoring is a simple and cost efficient solution to all the above scenarios and more. But many companies do not want to factor and the reason is they are not structurally able. However, they have to remember that factoring is not a loan but actual buying of the credit worthy invoices.
So, if a factoring company cannot take title to them, they will not buy them.
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