Working with commercial invoice factoring companies has numerous benefits and can provide near immediate cash flow for your business. In fact, factoring companies can help small businesses bridge invoice payment gaps with upfront payments, providing nearly all of the original invoice amount. That money is then immediately available for you to use to fund your business operations — make payroll, invest in new equipment, pay vendors, etc.
But as is the case with other types of commercial financial solutions, applying for invoice factoring services requires a certain level of thoroughness and attention to detail. The more you know before, the faster the process will be. Ultimately, that means quicker access to working capital for your business.
Here’s what businesses need to know about the invoice factoring application process.
Know Your Company’s Financial History & Business Setup
Before you meet with any specialists or submit any applications, it helps to have a solid understanding of your company’s financial history. Some questions you might be asked:
- What type of work do you do?
- How many current clients do you have?
- What is your monthly revenue average?
- How much do you have in outstanding invoices?
- Do you have any liens or judgments against your business?
Be prepared to answer these questions and provide documentation to support them.
Meet with an Invoice Funding Specialist
Before you submit your official application, you’ll likely be required to consult with an invoice factoring services specialist about the options that are best for you based on your business’ financial history and needs.
There are a few different types of factoring services available, and in addition to determining whether your business is eligible, a specialist can determine the best type based on business your needs.
Your rate is going to be based on the information that you provide during these conversations, so it’s critical that you’re upfront about any potential red flags like bankruptcies or tax liens. They’ll come up on a routine credit check anyways. Remember: when you’re applying for invoice factoring services, more goes into the approval process than your credit history. Past issues may not disqualify you from getting the funds you need.
Understand the Contract and Commitment
Finally, be aware of the specific terms of the factoring agreement that’s offered to you. Some factoring companies require you to submit a minimum amount in invoices each month. If you don’t meet that amount, you may be charged a fee.
Also, remember that you’re selling your invoices to a factoring company, which then collects that outstanding amount from your client based on the terms of your contract. If your client doesn’t pay that amount by the contract date, you may be charged back by the factoring company.
These and any other fees should be listed clearly in your contract. Read your contract to make sure that it matches everything discussed. Then, read your contract again. Once you sign your contract, you have little to no chance of making changes. Make sure you know what you’re signing.