As a new business you always do business on credit that will means that when you sell your goods to a third party wholesalers he will only pay you when he has sold the goods. The net effect is that you are now short of cash as most likely the payment will come in 30 or 60 or 90 days. That is also true for the government contractors as most likely when you get an order from government and when you execute that the government will generally pay you based on the invoices in about  90 days. 

In those 90 days you will have to pay the salary to the employees as well as pay the rent or the lease for the premises and in turn order more goods for manufacturing and expanding the business. Now you can go and get the money from the banks but the banks will generally not lend if you are new to the business and also the banks will place a certain limit on the amount that they can pay you as credit 

The question you may ask is that what kind of business is eligible for the factoring services and how many types of factoring services are available. There are several types of account receivables funding available based on the kind of business that you are doing. There is no dearth of small business factoring companies

 In a typical accounts receivable transaction the rates can be as low as .50% to 1.5% and can go up to 3% .It all the depends on the volume of business that you are giving to the factoring company as well as how good are your customers as that will determine how much you will be getting back once you have given the credit. 

The main benefit of the factoring of the accounts receivable is that you get the immediate cash flow and t is faster and better than the bank financing and the lines of credit. Most factoring finance companies do not even have a set of criteria about which company to do business with. If you are a start up or you are in a industry which has seasonal upswings of sales the factoring can be done for you? 

Factoring of accounts receivable is generally not done for those who do not have any sales at all. No another thing that you need to take into account is the fact there will be reserve factoring as  well as there will be a lot of discounting initially. Again as your business grows the reserve amount that is kept will be less as well there will so less of discounting. As a small business you need to think hard before you embark on this route of financing and make sure that you have explore all other financing options like the traditional loans as well as the grants for small business and that is a must otherwise it will be very tough for you to pay these high monthly rates of the accounts receivables financing.