Invoice Factoring Requirements: Does Your Business Qualify for Factoring Services?
You have big plans for your business. To reach your goals, though, you need cash. You need it to pay employees, buy materials, fund marketing campaigns, and more. The problem is that your customers only sometimes pay on your preferred schedule. You may regularly have receivables that don’t get paid for 30, 60, or even 90 days. And every day your invoices don’t get paid, your goals slip further away.
Would you like regular cash flow?
Cash flow is a significant challenge for many businesses. That’s especially true when your customers pay their invoices on net 30 or even net 60 terms. Most customers will take as much time as possible to pay those bills. Unfortunately, that makes it challenging for you to manage and grow your business.
What do you do to resolve your cash needs? You could apply for a bank loan, but it can be challenging to meet the underwriting requirements. Also, banks can take months to approve loan applications. Your cash flow need may have resolved itself by the time it’s approved.
That leaves one option: factoring financing. Factoring helps you get your cash flow on a more predictable schedule. You can get advances on a large percentage of your receivables within days of sending a new invoice so you have cash available to reach your business goals.
The best part of factoring is that the service isn’t based on your credit. Instead, approval is based on the creditworthiness of your customers. Factoring financing may still be a viable option even if you have a rough credit history.
List of typical factoring requirements:
- Your company sells to businesses
- You have creditworthy customers
- Your sales are $5,000 or more per month
- You have limited or no access to bank financing
- Your company and your customers are incorporated in the US
- You give customers 30 or more days to pay
Does your company sell products or services to other businesses on terms?
Factoring is almost always available only for B2B invoices. If you sell to consumers, there are better options than factoring. Also, your invoices need to have specific terms. Remember, the factor will be collecting on your invoice, so they must know when the receivable is due.
Are at least some of your customers credit-worthy businesses?
As mentioned, factors are more concerned with your customers’ credit than your credit. After all, it’s your customer who will ultimately pay the invoice. Do your customers seem like businesses with solid credit, good references, and reputable relationships with their vendors? If so, you may be a good candidate for factoring.
Are your sales at least $5,000 per month?
Most factoring companies have a minimum monthly sales requirement for factoring approval. If your monthly sales are less than $5,000, you may find it challenging to get approved.
Has your business ever been denied or experienced limited bank financing?
Many business owners look to bank financing before they turn to a factoring solution. The good news is that even if you’ve been denied bank financing in the past, you can still get approved for factoring funding. Again, factors are more interested in your customers’ credit, not rather than credit history.
Is your company incorporated and operating in the United States?
Most factoring providers in the United States only work with incorporated domestic companies. You must meet these criteria to qualify for factoring solutions.
Do your customers take more than 30 days to pay?
Factoring financing is an appealing solution if customers take more than 30 days to pay their invoices. Many businesses need the working capital on-hand to deal with a 30, 60, or even 90-day wait for invoices to get paid.
Why wait on your customers? You can get the cash you need today and let the factoring company manage the receivables process. If your customers take more than 30 days to pay their invoices,factoring accounts receivable could be the right solution for you. Contact us today to learn how factoring can help you overcome your cash flow challenges.