Single invoice factoring is a popular option for businesses, small and established alike, which are seeking for a means to fund projects and increase working capital, to inject cash and improve cash flow or to lessen the risk of any bad debts to occur or add up. Although getting your invoice factored is around ninety five percent easier as compared to applying for a traditional loan, there are requirements needed for you to qualify. Read up and know if this option can work for you.
1. Delivered goods and rendered services
Factors will only agree to advance the value of your chosen receivable only after you have rendered the service or delivered the products to your customer. You must first be able to satisfy your obligation to your clients as the inability to do so will also cause the default or absence in payment from your clients.
2. Organized financial documents
Especially when it comes to invoices and receivables, you must keep everything in a systematic and organized manner. No random and messy piles of papers should be scattered all over the place. It is also important that you have and are practicing strong and efficient controls when it comes to releasing invoices and managing your receivables.
3. Client credit history not business credit score
It is important that your client actually pays or has a good credit history. Do they take too long to pay or don’t they pay at all? Unlike traditional loans where the financial institution will look into your credit score, financial standing and require collateral, factoring will greatly require that your customers have a good credit history meaning that they pay within the given or agreed upon period.
4. Ability of clients to pay
Apart from checking how early or late they pay, your factor will also look into the financial capacity of your customer. Can they actually pay their dues or will they ultimately lead to bad debts? Do know that there is recourse and a non recourse in factoring. In the former you are required to buy back any unpaid invoice while with the latter, the financial institution will bear all the risk of non collection.
5. A clean slate
Lastly but also importantly, you have to have a clean slate. That is, you must be clear of any legal issues such as taxes. Single invoice factoring providers may not dwell much on whether you are a small company, an established business or one who is suffering losses. That is not their problem as they will not be affected by it as your client’s ability to pay are their key to collection not you. However, these firms will not transact with companies who are or may face serious legal issues due to noncompliance to rules and regulations.