How to Qualify for Invoice Factoring

November 13, 2019

Small and mid-size companies use invoice factoring because it provides a steady source of cash flow. One question when considering factoring is how to qualify for invoice factoring. The answer is not always clear. Here are some of the main criteria factoring companies require of businesses interested in factoring.

• Provide business to business work or services
• Work for customers with good credit and payment histories
• Have monthly sales which meet the factoring company’s requirements

What Industries Use Factoring?

Companies in many different industries use factoring with invoice payment terms. Factoring is a commonly used source of financing in B2B industries such as transportation, temporary staffing & recruiting, oilfield services, and many others. Businesses with state or federal government contracts also qualify for factoring. Companies with business-to-consumer (B2C) transactions are not eligible for factoring.

Why are my customer’s credit and payment history important?

One of the main requirements for factoring is they must have customers with good credit and payment histories. Factoring companies use the credit and payment history of the clients’ customer, as a primary consideration when advancing on invoices. Companies that routinely pay their invoices well beyond established terms, those with a history of financial problems, or companies with a limited operational history may not meet the factoring company’s criteria for funding.

What effect do business or personal credit scores have on qualifying for factoring?

Companies use invoice factoring when they do not qualify for traditional bank financing. Companies that experience financial struggles or difficulty can qualify for factoring. Factoring is an excellent way to rebuild financial strength, without adding additional debt to the bottom line. Factoring is an advance on an open invoice, not a loan, therefore the credit emphasis is on the client’s customer and their ability to pay the invoice.

What is the minimum volume amount required for factoring?

Most factoring companies have minimum volume requirements to qualify for a factoring program. Minimum volume requirements vary between factoring companies and are often flexible, especially for clients with the potential to grow. Because factoring fees are based on volume, lower volume minimums usually have higher fees.

What other issues can affect qualifying for factoring?

Common situations that affect qualifying for factoring are tax liens, liens filed by other financial institutions, and unincorporated businesses. These situations require additional time to resolve, however, they are not dis-qualifiers for factoring. Discussing these situations right upfront will save time and enable the factoring company to work through the issue.

Some Final Suggestions on Qualifying for Factoring

Each factoring company has guidelines and requirements for qualification. Talk to factoring company representatives and find the right program to fit the needs of the business. Discuss your business needs, situation, and customers. This is the starting point of how to qualify for invoice factoring and finding the best factoring deal.

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