In India, Micro, Small, and Medium Enterprises (MSMEs) serve as the primary pillars of the economy, contributing approximately 31.1% to the national GDP. According to data from the Economic Survey 2025–26, the sector has expanded significantly to encompass over 7.47 crore (74.7 million) enterprises, making it the second-largest source of livelihoods after agriculture by employing more than 32.82 crore (328.2 million) individuals. Beyond their staggering economic metrics, MSMEs are crucial drivers of inclusive regional growth, actively fostering employment and accelerating entrepreneurship across rural and semi-urban areas. However, despite their pivotal macroeconomic role, accessing adequate formal finance—particularly for short-term working capital needs—remains one of the most critical structural challenges facing these enterprises.

The alternate solution available to this issue is factoring of accounts receivables in the business. The problem recognised in the study is less application of factoring service by the MSMEs. Hence, the study undertaken to address the issue of financial crunch faced by MSMEs and factoring service available as an alternative solution to it. The study involves quantitative approach and conducted primary survey by interviewing various manufacturing sectors MSMEs in Peenya Industrial Area, Peenya, Bangalore. 

The study concluded that factoring is best alternative compared to private borrowings and other methods of raising finance. This is substantiated with the help of alternative cost comparison. The study analysis resulted in proving that MSMEs need alternative financing in the initial years of establishment and factoring is over all beneficial to MSMEs that improves the efficiency. The study suggests suitable recommendations from the findings and concludes that Factoring Service as a major financial tool to MSMEs of manufacturing sector.