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Invoice Factoring Requirements - Does Your Business Qualify for Factoring Services?

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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, your customers don’t always pay on your preferred schedule. You may regularly have receivables that don’t get paid for 15, 30, 60, or even 90 days. And every day that your invoices don’t get paid, your goals slip further and further away.

What to do to resolve your cash needs? If you’ve taken some of our other financing quizzes, you know you have a few options available. You could apply for a bank loan, but it can be difficult to meet the underwriting requirements. Also, banks can take months to approve loan applications. By the time it’s approved, your cash flow need may have resolved itself.

You could turn to family and friends for a loan, but that approach brings its own set of complications. The business deal could sour your family relationship. Your family may wish to have input into the management of your business.

You could also bring in an investor, but that would involve giving up a portion of the ownership of your business. An investor may take a cut of your profits, and may ultimately want decision making authority in the business. In fact, he or she may even want full control of the business.

That leaves one option: factoring financing. Depending on your situation, factoring could be the most effective solution for your needs. Don’t think of it as a last resort; factoring offers a way to get fast funding without rigorous underwriting, awkward conversations with family, or unfavorable deals with investors.

A factoring company provides cash advances for a portion of your outstanding invoices. In many cases, a factor may provide up to 80 percent of the invoice or more upfront. Your customer then makes their payment directly to the factor. Don’t worry; most customers don’t know that a third party has been introduced to the process.

After the invoice is paid, the factor keeps a small percentage for their work and then forwards the balance to you. Perhaps the best part of factoring is that the service isn’t based on your credit. Rather, approval is based on the creditworthiness of your customers. Even if you have a rough credit history, factoring financing may still be a viable option.

Curious about whether or not factoring financing is a good solution for you? Review the questions below and then take our Factoring Financing Quiz. At the end of the quiz, you will get a custom response to help you decide whether to move forward with factoring as a solution for your cash flow needs.

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, factoring may not be a good option. Also, your invoices need to have specific terms. Remember, the factor will be collecting on your invoice, so they need to know exactly when the receivable is due.

Are most of your customers credit-worthy businesses?

As mentioned, factors are more concerned with your customers’ credit than they are with your credit. After all, it’s your customer who will ultimately pay the invoice. Do your customers seem like the kinds of businesses who have solid credit, good references, and reputable relationships with their vendors? If so, you may be a good candidate for factoring.

Does your company have two-or-more repeat customers?

The factoring company will likely want to see that your customers have paid similar invoices in the past. You’ll be more likely to obtain factoring funding if you have customers with repeat orders. That way, the factoring provider can be confident that you and your customer have completed these types of transactions before and that the customer always pays the invoice.

Are your sales at least $5,000 per month?

Many factoring companies have a minimum monthly sales requirement for factoring approval. If your monthly sales are less than $5,000 per month, you may have difficulty getting 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 the credit of your customers, not in your credit history.

Is your company incorporated and operating in the United States?

Most factoring providers in the United States only work with domestic companies that are incorporated. If you don’t meet these criteria, you may not be able to qualify for factoring solutions.

Would you like regular cash flow?

Cash flow is a major 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 manage and grow your business.

Factoring helps you get your cash flow on a more predictable schedule. You can get a large percentage of your receivables within days of sending a new invoice so you have cash available to reach your business goals.

Are you struggling with payroll and/or other day-to-day expenses?

Your customers can take as much time as they want to pay your invoices. Unfortunately, the bills don’t wait. Your employees have to get paid. Your vendors need payment. Your rent and utilities are still due. Factoring is a great way to get cash quickly so you can meet payroll and other day-to-day expenses.

Do your customers take more than 30 days to pay?

Factoring financing is an appealing solution if your customers take more than 30 days to pay their invoices. Many businesses don’t have 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 then let the factoring company manage the receivables process. If your customers take more than 30 days to pay their invoices, factoring could be the right solution for you.  Contact Gateway Commercial Funding today to learn how factoring can help you overcome your cash flow challenges.


Requirements to Access Factoring Financing Services

Invoice factoring (a.k.a receivable factoring) is a financial transaction in which a factoring company buys at discount receivables owed to a business (the client) by creditworthy businesses (the client’s debtors).

For an invoice to qualify for factoring the following requirements have to be present:

  1. The invoice is issued on terms from 30 to 90 days.
  2. The sale is originated on a Business to Business (B2B) transaction.
  3. The debtor is a creditworthy business.

At the time of the purchase of the receivable the invoice factoring company “advances” funds to the client. The amount of the advance depends on an “advance rate” previously agreed between the factor and its client.

When the invoice is due, the factoring company:

  1. Collects the payment from the debtor.
  2. Pays its client the difference of the invoice face value minus the advance already provided and the pre-agreed factoring fees.

It's that simple!

Check the Invoice factoring calculators for factoring fees and advance information.

For detailed information about factoring and answers to frequently asked questions please visit our How invoice factoring works page.