Lesson 2: Common Reasons Businesses Choose Invoice Factoring

2. Use Invoice Factoring to Keep Pace with Rapid Business Growth

Underperforming businesses may not feel much pity to those businesses that are at risk of coming undone due to their inability to keep pace with rapid growth. Yet a business that is growing too quickly runs the risk of collapsing in on itself in not financed properly. This is where invoice factoring can help. Let’s look at an example:

• “A Pencil Draws” manufactures colorful pencils primarily for middle-school children. For the upcoming quarter, the company plans to produce 500,000 boxes of pencils to be sold.
• A preteen pop star is filmed on YouTube signing autographs and saying how much she loves her “A Pencil Draws” multicolored pencils. The video gets millions of views and overnight becomes the must-have pencil for middle-schoolers everywhere.
• At first, “A Pencil Draws” is thrilled with their rise to fame. Their product sells out of stores and customers are clamoring for more. That’s where the “trouble” begins. “A Pencil Draws” wants to dramatically ramp up production and distribution but lacks the capital and manpower to do so.
• If “A Pencil Draws” fails to secure financing quickly, they run the risk of forfeiting potentially millions of dollars in sales as well as gaining a bad reputation as a company that just can’t keep up.

Factoring Receivables Can Fix Rapid Growth Pitfalls

Because the business model of Factoring Receivables is built on expediency and its current receivables (aka sales) rather than a credit score, “A Pencil Draws” can partner with an invoice factoring company to get the cash it needs quickly to double, triple or even quadruple the production of their pencils. They can hire the workers, drivers, and supply chain help they need to get their product on store shelves quickly before demand wanes.