Factoring Qualifications: What You Need to Know
Invoice factoring is one of the most accessible forms of usable business funding available today. Whether you’re an established company, a startup, or even publicly traded, the basic qualifications to work with a factoring company are fairly straightforward:
Basic invoice factoring qualifications:
- B2B Sales: You need to be selling goods or services to other creditworthy businesses. Sales directly to consumers are not eligible.
- Work Must Be Completed: The goods must already be delivered or the service finished so that you’re able to issue an invoice. Prebilling is generally not eligible.
- Extend Payment Terms: Your customers pay on terms typically anywhere from Net-7 to Net-90 days.
- Receivables Must Be Unencumbered: If you already have financing in place (a loan, line of credit, SBA loan, MCA, or Revenue loan) and there’s a UCC-1 filed on your receivables, you may need to arrange a subordination or release on your receivables before moving forward.
Many factoring companies can move pretty quickly once they have a completed application, it’s not uncommon to get an approval within an hour, with first funding available in just a few days.
That said, speed is only part of the equation. If you want funding that’s not just fast, but also reliable and cost-effective, there are a few important things to keep in mind.
The right setup on the front end can make a big difference in the discount rate, advance rate and how smoothly everything runs once you’re up and going.
Here are a few key items to consider:
1. Start with an Honest, Upfront Conversation.
Operating companies go through rough patches it’s just part of the cycle. One quarter can be strong, the next can be challenging. They deal with bad debt write-offs, lose key customers, don’t adjust overhead to match income, run into defaults with their lender, or suddenly see availability tighten or disappear altogether.
None of this is unusual. It’s the reality of running a business.
Most factoring companies are run by entrepreneurs just like you… and some of the more experienced, have seen just about everything!
Delinquent taxes, judgments, lawsuits, bruised personal credit, stacked MCA debt, past-due vendors, even bankruptcy (before or after filing), none of that surprises them. They’ve seen it all, including personal situations like divorce.
An experienced factoring company knows how stressful these situations can be and can adjust the process to move things along quickly when it makes sense.
What matters is context and direction. Factors tend to look beyond these issues because their primary focus is on your receivables, more specifically the financial strength and payment reliability of your customers.
If your customers are creditworthy and paying regularly, that can often outweigh other challenges or your personal situation.
They also understand that many of these problems are symptoms of poor cash flow, not necessarily a broken business. In a lot of cases, reliable access to working capital through factoring can actually help stabilize operations allowing you to catch up with vendors, clean up tax issues and reduce reliance on expensive debt.
That said, transparency is key. The more upfront you are, the more likely a factor can review the entire picture and structure something that works for everyone. Nobody likes surprises, especially after time and considerable effort are put in getting a new client set-up.
Choosing a factoring company with significant experience, direct access to decision makers and a factoring company that’s not bank owed may give you a better chance of putting a relationship together quickly.
2. How Much Volume Makes Sense to You?
Whether you’re factoring $20K a month or $200K, the internal process for the factoring company is pretty similar. Where things really change is the pricing. Simply put, the more volume you bring to the table each month, the better your discount rate is likely to be.
Don’t factor more than you need to, but be mindful that volume will impact the discount rate.
3. Avoid Customer Concentration
A diversified customer base works in your favor. When your receivables are spread across multiple customers, the risk to the factoring company is lower. That typically translates into higher advance rates and more consistent reserve releases. This is especially important if the credit quality of your customers is less than perfect.
4. Picking the Right Customers Matters
You probably already know which of your customers are slow to pay but interestingly… those aren’t always the best ones to factor.
The reality is you’ll get the same advance whether an invoice pays in 40 days or 70 days. The difference shows up in the cost. The longer it takes your customer to pay, the more you’ll pay in discount fees.
On top of that, invoices that drag out can make a factoring company hesitant to keep buying from that customer or release reserves as quickly. So it’s worth being a bit strategic about which customers you include in your factoring program. Most factors will allow you to add or subtract customers at your discretion.
A quick word of caution when choosing customers: if you’ve got a financially troubled or difficult customer, factoring those invoices is really just passing the problem along to the factoring company.
That’s not the best way to start a relationship. And even if the factor doesn’t catch the issue right away, it’s usually only a matter of time before it surfaces and it becomes your problem again.
Factoring companies don’t buy non-performing invoices or bad debt.
5. Finding the Right Fit for your Timeline
Factoring companies put a fair amount of time and money into onboarding a new client. Because of that, the longer you’re willing to commit to the relationship… say six months or more, the better the terms can get.
A longer commitment gives the factor some confidence in earning a return, which can translate into a lower discount rate and potentially a higher advance for you.
Also, keep in mind that these relationships usually take about 45–120 days to really get into a rhythm. That time allows both sides to build some history, get comfortable, and fine-tune the process based on performance.
You can absolutely approach factoring as a short-term, transactional solution but just know it may feel a bit clunky without history.
Ready to Get Started? Here’s How
Getting started with invoice factoring is pretty straightforward. To see if your business qualifies, you’ll generally just need a few basic items to submit with an application:
- Accounts Receivable Summary – a current list of your outstanding invoices (by invoice date)
- Accounts Payable Summary – an up-to-date snapshot of what you owe
- Business Bank Statements – your most recent 3 months
- Sample Invoice – so we can see how you invoice your customers
Before jumping into an application, we usually suggest a quick pre-qualification call with a decision maker.
It can be a simple 5-minute conversation that helps determine if we’re a good fit and can save you time if we’re not.
You can reach Marc J. Marin directly at 561-424-2940 or by submitting a factoring quote request form.
If everything checks out, we’ll give you access to our online application where you can securely upload your documents and complete a few additional fields. The whole process typically takes about 10 minutes.