Factoring can be an excellent option for companies facing a cash-flow squeeze and slow-paying customers.  You company can sell their invoices or accounts receivables to a factoring firm for a quick turnaround on their receivables.  The factor advances most of the invoice amount — usually 80% to 85% — after checking out the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction (or factoring) fee.

Companies that use factoring like it because they get money quickly rather than waiting the usual 30 or 60 days for payment. After sending an invoice to a factoring firm, a business can have money within 24 hours.

Some businesses use factoring to get started. Whereas banks focus on a business’s creditworthiness in considering whether to make a loan, factors look at the financial soundness of a business’s customers. As a result, firms with scant credit history may be able to sell their invoices. Some factoring firms will also handle collections.  This can be a huge benefit for small companies without a large office staff.  Factoring can be the best option for smaller companies that want to increase their cash flow and enhance growth.