• Business-to-business companies — (You must have sizeable invoices to assign to make it worthwhile for a factor to get involved, and that means invoices owed to you from other businesses. B-to-C companies will not have sizeable invoices.)

• Startups with strong accounts receivable — (Startups is a bit of a misnomer – remember, we’re not talking a 6-month old company here. Most raw startups simply don’t have enough receivables at first to assign to a factor. Think “young company” instead.)

• Accounts that take 30 or more days to pay — (The essence of factoring is that it speeds up the time in which you receive payment. If an account already pays you within 15 days, why would you want to assign that to a factoring company and have to pay factoring fees?)

• A special job or project where payment will be delayed – (A big project or possibly a government contract, where you do not get paid for months, could be crushing to your cash flow. If you anticipate these situations in advance you might try to up your pricing, just so you have enough cushion to later take advantage of factoring. In a way, it’s not that much different than giving a discount for early payment.)

• Cash-strapped businesses needing to meet a payroll or take advantage of a supplier’s cash discounts– (Hands down, factoring is one of the fastest sources of financing. Some factoring companies promise 24- to 48-hour turn around.)

Why Factoring Doesn’t Get No Respect

I think that factoring has developed a bad rap as being a financing source of “desperation.” In some cases that undoubtedly is true, especially because factoring is such a fast source of cash. But “desperate” businesses are hardly the only ones to use factoring.

Some businesses use factoring as a long-term strategy to manage cash flow, saving the traditional forms of credit for growth expansion and other needs. They bake in the costs of factoring fees into their pricing in advance, so that the fees don’t gobble profit margins.

Don’t let the bad rap stop you from investigating factoring to see if it is right for your business. But I would suggest that if you are going to use factoring, let it be because you’ve made a strategic decision after running the numbers, and decided that it’s your best source of cash flow. Don’t turn to factoring out of desperation.

Oh, and how to find a factoring company? Just search in Google – there are gazillions of them.

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Anita Campbell is a writer, speaker and radio talk show host who closely follows trends in the small business market at her site, Small Business Trends.