Factoring is for both small and mature companies in distress because of losses and new companies running out of money because of profitable growth. In both cases, conventional bank financing is not always available or not adequate. Because of today's economy, bank financing, especially for leveraged or young companies, can be tough to obtain.
You may be asking, how do you run out of money with profitable growth?
Easy, let's assume you are a manufacturer that needs to pay its suppliers within 30 days but your customers pay on average in 55 days. Worse yet, take a service company such as a temp-staffing agency that needs to pay its employees every 7 days and still averages 50 days on accounts receivable turn. Even with good margins, cash runs out quickly with any meaningful growth.
This may help explain why domestic factoring continues to grow every year. It could be the solution you have been searching for!
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Thanks for reading.
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