Factoring is an Off-Balance Sheet Transaction

Invoice factoring is not a loan. It is the purchase of a company's accounts receivables at a discount. As a result, advances made to the company from a factor are not classified as a liability on the balance sheet. The financial goal to keep debt to a minimum is therefore maintained. Once the customer pays the factoring company, the transaction is complete. Compare that scenario with receiving a line of credit with the bank in which frequent pay downs aren't required. The credit line will likely transition to a term loan, which does not help the appearance of the balance sheet.

As we've discussed before, funding from accounts receivable factoring is only limited by the company's pool of their accounts receivable. Because of this, a fast-growing company can get all the working capital it needs to expand.