Qualifying For Invoice Factoring

June 22, 2018

The basics of qualifying for a factoring facility

Qualifying for invoice factoring is primarily based on a simple set of facts that a factoring company needs to understand.

  1. Is the business to business (B2B) or business to government (B2G) invoice for a product or service that has been delivered or completed, and;
  2. Is the account debtor or customer able to pay the invoice.

If these things can be determined along with the fact that a business has some going concern” then typically they will be a candidate for accounts receivable factoring.

Factoring does not require a certain credit score, nor years in business, and neither is it decided upon by a computer algorithm. For this reason, invoice factoring has proven in its different forms over the centuries, that it is a very valuable tool to a growing business that needs cashflow.

The benefits of invoice factoring and why many businesses qualify for it

  • No repayment that impedes cash flow
  • No real limit outside of good paying customers
  • Not based on number of years in business
  • Good for startups, medium and large-sized businesses
  • No requirement to factor if you do not need to
  • No hard cost to getting set up
  • Rapid approval and funding

Common reasons a business doesn't qualify for accounts receivable factoring

There are times when factoring is not a great fit as a finance solution for a business. Some common reasons are.

Pre-billed or progress billed invoices

As a factoring company cannot complete the service for the invoice they are purchasing, of course the service needs to be completed for an AR factoring company to be able to purchase the receivable or invoice. If the invoice is billed before the service is complete, then a factoring company would not be able to purchase or fund against it. In the same way, if an invoice is submitted for a service that is only partially completed then the same problem would arise.

Businesses that solely invoice consumers

As a factoring company is purchasing invoices primarily based on the credit worthiness of a business customer, they are unable to purchase invoices that are to an individual. Factoring companies are a good fit for companies that have business to business or business to government receivables.

Businesses without accounts receivable

There are many businesses that simply do not have accounts receivable. Many software companies require payment before any service is rendered and many other types of businesses require up-front payment before starting any work. As accounts receivable factoring companies are basing their funding on outstanding AR, these businesses would not qualify for invoice factoring either.

Do you qualify for invoice factoring?

If you are not sure if your business is a good fit for factoring, please feel free to reach out to a Meritus Capital representative. Generally, with a quick conversation, they will be able to determine whether or not it is a good fit. Apply or call us today toll-free at 1-877-648-3709


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