Companies turn to factoring to help with cash flow for a variety of reasons, including but not limited to: speed up invoicing, manage daily operations, gain access to capital for reinvestment into the business (or for expansion) or sometimes to simply reduce administrative burden in the short or long term. Factoring allows your company to sell you open invoices to the factoring company for same-day payment. The factoring company then takes over payment collection from your customers.
Factoring is also sometimes called accounts receivable financing. This term might be more helpful when you’re trying to determine if you company could benefit from factoring. Quite simply, do you sell products or services to another business on credit terms (net-30, net-60)? If so, your business is likely to be a good candidate for factoring.
Here’s a short list of industries that regularly use factoring:
- Trucking and freight companies
- Energy, oil and gas
- Commercial food service
- Government suppliers
- Information Technology
- Business services and consulting
- Administrative services
- Janitorial and cleaning
- Call centers
- Security and investigative services
- Courier and delivery services
If your business is in one of these industries and meets the general criteria discussed above, factoring might be a great option to consider to help you increase your cash flow.