Customer Credit
Factoring really comes down to one thing, the creditworthiness of your customers. That’s what drives everything.
When you first start working with a factoring company, they’ll review your accounts receivable aging report to get a feel for your portfolio. Here’s what they typically look for:
- Open balance amounts – Are your receivables spread out, or is most of your business tied up with just a few big customers?
- Aging of balances – Are your customers paying on time based on your standard terms, or are they stretching payments?
- Type of aging report – Is it based on the due date or the invoice date? That detail helps them gauge true payment performance.
After this quick review, the factor will usually focus on your largest customers, the ones that might be eligible for funding and start running business credit checks on them.
Most factoring companies rely on one of three major business credit providers, Dun & Bradstreet, Experian, or Equifax, to evaluate customer credit history and payment behavior before approving invoices for purchase.
Every factoring company sets credit limits for each of your customers and those limits don’t always match the amount of credit you’ve decided to extend. That’s one of the most common sources of frustration between clients and their factors.
From your perspective, you know your customers and their payment habits. From the factor’s side, they’re relying on data, credit reports, public records, and sometimes payment history you provide to make those calls.
Consider this, factoring companies only make money when they’re buying invoices, so they’re not looking for reasons to say no. If they pass on an invoice, there’s usually a solid reason behind it. When there’s a difference of opinion, it can definitely impact cash flow since the factor will cap how much they’re willing to buy from that customer.
The good news? Customer payment performance speaks volumes. When your customers pay on time and consistently, your factor gains confidence and is more likely to increase credit limits. If payments start slipping, though, they’ll usually tighten credit or stop buying those invoices altogether.
A good factoring company doesn’t just check credit once and forget about it. They’ll typically re-review your customers’ credit every 90 days or even more often if invoices start aging or balances climb higher than usual.
Most factoring companies offer access to their credit tools and expertise, even for customers you’re not currently factoring. That’s a huge resource that many business owners overlook.
Think about it: factoring companies review thousands of businesses across different industries, so they have deep insight into payment trends, risk signals, and credit behavior. Tapping into that knowledge can help you make smarter decisions about extending terms, taking on new accounts, or increasing credit limits with existing customers.
So, when your factor offers to run a credit check or share feedback on a potential client, take them up on it. You’re essentially getting a built-in credit department with years of experience, and that kind of insight can save you from a costly mistake down the road.