A company, when it feels that it can earn more using the proceeds from factoring than from the invoice will use factoring. The factor evaluates the credit worthiness of the debtor, not of the company, before factoring. So, businesses with customers who take a long time like fifty or sixty days to pay for the goods or services avail factoring.

Small businesses with limited opportunities for a bank loan turn towards factors. It is proper to use factoring, when the revenue is positive after deducting cost of sales and factoring costs. Businesses that need to meet their wages or bills can use the proceeds from factoring.

So also when bigger businesses somehow or other fall into the bad books of banks can seek after factoring to make a turnaround. Factoring is more suitable for small and particularly new businesses, who sell their products to creditworthy larger businesses.

Businesses that have a large number of customers are ideal for factoring. Also are businesses that do not allow a single customer hold more than about a third of turnover. Customers must accept the standard payment terms of the industry, and a reasonable period of credit. Businesses with commercial customers only can avail factoring.

Enterprises with sales to the public are not suitable for factoring. Likewise, businesses with so many invoices for small amounts, and disputes and queries are also not ideal for factoring. Businesses with unhealthy business practices can’t go with factoring.