Invoice factoring is a unique form of business financing used by small and mid-size companies to build consistent, working cash flow. As business owners and operators explore their factoring options, one question often comes to mind, “Do I qualify for invoice factoring?” The answer is not always a simple yes or no. Here are some standard criteria and qualifications companies need to meet to factor their invoices.
One of the oldest forms of financing is invoice factoring – the selling of accounts receivables. Invoice factoring has been around for about 4,000 years. It was predominately used in the textile and clothing industries but is commonly used today in many other industries such as oilfield services, trucking, and staffing. Any business-to-business transaction paid in net terms has the potential to use factoring.
Factoring is the simple process of a business selling their open invoices to a factoring company. The factoring company will pay an advance on the invoices, generally 80 to 90 percent of the face value of the invoice. In most cases, this advance is paid within 24 to 48 hours of the factoring company receiving and approving the invoice.
Once the factoring company approves and advances on the invoice, it is sent on to the customer’s client, where the invoice is processed and paid in normal terms. When the invoice is paid, payment is sent to the factoring company. Once payment is received and processed by the factoring company, the remaining balance of the invoice, less a factoring fee, is remitted to the factoring client.
Invoice factoring is not a loan. Therefore, the qualifications for factoring are different. When a company applies for bank financing, their credit and payment history, along with financial statements and business plans are reviewed by the bank to make a lending decision. This process can be both paper intensive and lengthy. Banks have strict qualifications for lending, and many companies cannot meet the bank’s conditions.
For a business to qualify for invoice factoring, a factoring company will look at the credit and payment history of the factoring customer’s clients. If the factoring customer is working for or providing services to companies with strong credit and payment histories, then approval for factoring those invoices is quite easy. Do keep in mind that each factoring company has their own credit policies.
One of the reasons so many companies use invoice factoring is most factoring companies are very open to customers with business challenges. Companies in a variety of situations qualify for invoice factoring.
Factoring companies understand that businesses have ups and downs. Many factoring companies have experience in providing factoring programs to companies such as startups, those with tax issues, companies that are growing rapidly, and even those with bankruptcy actions.
Invoice factoring is an ideal source of financing for companies such as:
When choosing a factoring company, be sure to get clarity and understanding of a factors experience with your business situation.
Factoring companies set their rates based on the volume of invoices a customer will factor. Here again is where a company in need of factoring, must do their homework. Each factoring company has different guidelines when it comes to volume. Some will have no monthly minimums, but rates and fees are generally extremely high. Others will require a specific minimum volume to offer a factoring program that is beneficial to the customer and the factoring company.
For a free, no-obligation factoring quote and conversation to qualify for invoice factoring with Scale Funding, call 800-707-4845, or fill out the form below.