Factoring differs from traditional bank loans because the credit decision is strictly based on receivables, rather than other criteria, for instance, how long the company has been in business, working capital and personal credit score.
Factoring differs from equity financing in that factors don't take equity in the company. Since contracts are short-term, the client could elect to stop factoring whenever he or she chooses.
The industry, notes Birnbaum, is set to grow again in light of current instability in U.S. markets related to credit lending practices among major lenders, such as banks. Factoring does well when banks tighten their lending and people can't find money anywhere else.
Bruce Freeman is president of ProLine Communications, a marketing and public relations firm.