Invoice factoring is a form of finance that enables you to get quick payment on your invoices, thus improving your cash flow. Many companies are hindered by the time it takes for customers to pay their bills. You may have a more consistent stream of income through factoring. Crown factoring services are among the most well-known and dependable companies for invoice factoring, with Apple and ESPN among its customers.
If you’re considering utilizing an invoice factoring service, this is a fantastic idea. However, did you know that you and your company must meet a checklist of requirements to obtain financing from a factoring firm? And we are here to bring them down for you.
Requirements For Invoice Factoring Financing
1. A Clean Company Background
While your business does not need excellent or established credit to be accepted for factoring, it must have a clean financial and tax history. Your business must be free of tax difficulties and accounting concerns to qualify. If your business can pass a background check, your factoring request will most likely be granted.
2. A Reputable Business Owner
With the business’s financial condition, the records owners must be free of any legal or financial problems. Expect the factoring business to do a public record check on your and other company directors’ backgrounds. Personal concerns are unconnected to the company, but matters of public record, such as previous bankruptcies or criminal background, may also be included.
Qualifying for invoice factoring is simple, but there are a few criteria for company owners to meet. When you know what you need to qualify for invoice factoring, you can determine whether or not this arrangement is right for your business.
3. Invoices to Factor
Although this may seem to be an apparent requirement, it is worth emphasizing that you must submit invoices for finished services. For example, you cannot factor in invoices that you anticipate producing in the future. While some factoring firms may deal with new businesses, you will not be able to earn cash flow through factoring until your service has been finished and a valid invoice has been produced. For established companies, you may be required to provide accounts receivable aging reports to the factoring provider.
4. Customers with Excellent Credit
True, company owners do not need to have perfect credit to qualify for invoice factoring. On the other hand, their clients must have a good credit history, especially when making invoice payments. For your factoring request to be accepted, you must utilize invoices for clients that have a history of paying their bills on time and in full.
5. Already Issued Invoices
An additional requirement for invoice factoring is the kind of invoices you want to factor. Factoring firms will only accept bills that have already been issued; proposals or invoices for future work will not be considered part of the agreement. Your invoices should be sent on time, with a payment period of no more than 90 days. If you habit extending bills with longer payment terms, you will factor such invoices.
6. Factoring Application
Among the essential prerequisites for invoice factoring is an application. Applications differ based on the user’s requirements, but most need business and personal phone numbers, email addresses, and company data. Applications will also often request your company’s industrial sector and monthly invoicing volume. The more information you give while completing an application, the more accurate the invoice factoring estimate is, so be as thorough as possible.
7. Accounts Receivable Aging Report
An account receivable aging report is another document needed for factoring. Unpaid bills, credit memos, and notes are listed by date in this report. Accounts receivable aging reports are often known as a schedule of accounts receivable or simply a schedule.
This form is used by factoring companies to track outstanding invoices, how much money is owed, and when they will be paid. This report is an essential component of the factoring documentation. You and your factor will agree on a reasonable timeframe for submitting the required documentation.
8. Copy of Articles of Incorporation
To be eligible for invoice factoring services, you must demonstrate that you have a legally documented company, which implies you must have a copy of your Articles of Incorporation on hand. This demonstrates the credibility of your firm to the factoring company. Take a copy and double-check that it has your company’s name, address, and other information. You will have a difficult time finding a good source of financing if you do not have evidence of the legal formation of a company.
9. Business Bank Account
You wish to finance if you use an invoice factoring business. If you wish to get financing from a factor, you’ll need a business bank account. Factoring firms do not send out cash or move funds to personal bank accounts. Invoice factoring requires customers to have a business-only account into which they may make wire or ACH transactions.
10. Tax ID Number
A government-issued tax identification number, often known as a social security number, is also required for invoice factoring. The factoring firm will utilize your tax ID number to ensure that you or your affiliated company have made the required tax payments. The factor will also look into any outstanding liens you or your business may have.
11. Personal Identification
Personal identity is required for invoice factoring; do not skip this stage. Factoring businesses need a method to verify that the individual to whom they are sending money is genuine. A driver’s license, a passport, or a social security number are all examples of personal identification.