During the initial stages of business development or rapid growth period, one of the most common that owners face is cash flow problems.  This problem may become serious if your completed work projects go unpaid for more than 30, 60, or even 90 days after issuing the invoice. Therefore, when a company in its growing stage they apply for small business loans. However, this loan may increase expenses and requires collateral security for the business.

At times, when a small company approaches banks for loan their request get turned down because of loan underwriting criteria. Hence, they turn towards equity financing which is harder to get than debt financing. Finally, when a small company finds equity finance it takes them longer to arrange. In such situation, where a small company is experiencing cash flow difficulties, accounts receivable factoring is a much more viable option.

The term factoring refers to conversion of accounts receivable of a business into cash by selling outstanding invoices to a 'factor' for a discount. Under this process, the factoring company doesn’t look at the applicant's financial statements, but at the capacity of the client’s accounts receivable. The primary reason behind this attitude is that factoring companies are paid by the applicant; therefore, they are more bothered about the creditworthiness of the applicant's customers. The business is termed as good candidate for invoice factoring when the applicant's company has a product or service that it provides to a creditworthy customer.

The best part about financial factoring is that it provides funding without creating any debt or additional collateral. Not only is the procedure simpler but also quicker than funding through traditional lender. A business can acquire fund through financial funding within 3-5 business days. Apart from these benefits, a business can get finance as long as a business has outstanding invoices and requires more cash to sell products/services to credit worthy account debtors.