Both factoring and invoice financing work better for companies in industries that deal with large bulk sales. Getting an advance on thousands of smaller payments is inefficient because of the many fees, which add up, and the time it requires, whereas getting an advance on a single large payment helps you get more money more easily.
For this reason, the most common industries which use one of these financing techniques are manufacturers, wholesalers, and construction.
If your business fits the right category, and so do your clients, the next set of questions to ask yourself are:
- Is your business experiencing cash flow problems?
- Would your business benefit a lot from being able to reinvest capital one to two months ahead of schedule? In other words, are you aiming for faster growth and willing to use factoring or invoice financing to reinvest immediately?
- Does your business need greater flexibility? Sometimes a new business opportunity may appear when you’re not ready to invest the money required to take advantage of it. Factoring and invoice financing can help you have more flexibility.
If you think your business could benefit from using factoring or invoice discounting, the last piece of the puzzle is finding the right financing company.