When and Which Companies Are Better Suited to Use Factoring

Abstract

A healthy cash flow is a very important point for a business. Many facts show that a healthy cash flow is more important even than the creation or distribution of goods and services. Being one of the key points, the cash flow is defined as a management tool in the company. So the management continuously requires different financing ways for the company in order to significantly decrease the gap created between the liquidation of payable accounts period and collection of receivable accounts. In the world there are diverse financing ways, by which the most common are bank loans. But with the trade development is also increasingly developing the factoring industry (Note 1). The purpose of this analysis is to sift through given examples the moment when a company needs factoring, to analyze the gap of liquidity and also, through an econometric model built on the basis of a empirical study, that we have done for 110 SMEs in Albania, to prove that the indicators of liquidity determine which companies are better suited to use factoring as a financing source for the working capital.