Why might a company use invoice factoring? What types of companies can best leverage it?

Invoice Factoring enables companies to operate on a cash basis. By converting unpaid invoices into immediate cash, companies can bridge the gap between delivering goods or services and receiving payment from customers, which often takes 30, 60, or even 90 days.

1. Slow Paying Customers

For businesses in industries like trucking, manufacturing, or staffing, operating expenses such as payroll, fuel, and supplies can’t wait for slow-paying customers. Factoring provides the liquidity needed to cover these essential costs without taking on additional debt.

2. High Growth

Companies experiencing rapid growth or pursuing large contracts often face working capital constraints. Factoring gives them the financial flexibility to take on new opportunities, hire more staff, or expand their operations without being limited by delayed payments.

3. Alternative to Traditional Lending

Unlike bank loans or online lending, factoring sometimes doesn’t require as extensive credit checks or collateral. Approval often focuses on the creditworthiness of a company’s customers, making it accessible to businesses that may not qualify for traditional financing.

Awareness Gap

At Flexent, we believe there are about 15% of businesses that need something like invoice factoring. It fulfills a unique need that traditional banks and lenders often cannot address, especially for small or medium-sized companies that operate on thin margins. Despite its benefits, however, many businesses are unaware that factoring exists, or their knowledge of factoring is plagued by stigmas and myths.