This is a common question we get from clients – is factoring right for my company? While we cannot answer the question for them, we always hope to provide them with information that will help them (or their advisers) make a decision. As always, you should consult a legal and financial adviser determine if factoring is the right solution for you.

Invoice factoring solves one single simple problem – cash flow shortages that are created by slow paying customers. It’s common for customers to pay their invoice on net 30 to net 45 days. However, many customers are trying to conserve their own cash by paying invoices slower. This has a negative effect on small companies that work for them because not many can afford to wait for payment.  This is where invoice factoring can help. It can accelerate the revenues due from your invoices, providing your company with the liquidity it needs to meet its obligations. It’s a fairly flexible solution that works for most industries that invoice other companies such as – staffing agencies and freight carriers.

One of the big advantages of invoice factoring is that it’s easier to obtain than most conventional business financing products. The most important qualification criteria is that your customers need to have good commercial credit – this is because your invoices are the most important collateral for the invoice factoring transaction. Aside from that your company needs to be free of legal and tax problems.

Ultimately, the easiest way to determine if factoring is right for you is to ask yourself if your company would be better off if your customers paid sooner. If the answer is yes – and if your company can afford the cost of factoring, then it’s very likely it will be the right choice.

Disclaimer: This article is not intended as legal or financial advise. If you need advise, please consult a professional.