What Does It Take to Qualify For Invoice Factoring?

 If you're a small business owner, you may have heard of invoice factoring as a way to get funding. But what does it take to qualify for this type of financing? 

In addition, invoice financing companies will likely run a credit check on you and your business. If you have poor personal or business credit, this could affect your ability to get approved. 

Fortunately, there are a number of financing companies out there that specialize in working with small businesses, so it's worth shopping around to see which one is the best fit for you. With a little bit of research, you should be able to find an invoice financing company that can help you get the funding you need to grow your business. Fortunately, invoice factoring is a lot easier than you think! Let's take a closer look at what it takes to qualify for invoice factoring:

Provide Proof of Business Organization

You'll need to provide a copy of your business license. If you're incorporated, you can provide a copy of your articles of incorporation. If you're an LLC and have filed for good standing, then provide the certificate that shows that information.

If you're a partnership, provide copies of any agreements (i.e., partnership agreement or operating agreement) that are relevant to how the business operates and identifies how revenue is split between partners or members. You should also provide copies of any bylaws that govern how decisions are made within the organization (if applicable).

Your Business Must Be Solvent

You also need to be solvent, or in other words, able to pay the invoice factoring company back. The invoice factoring company won't provide you with funding if your business can't afford it. For example, you must be able to pay the invoice factoring company's fees as well. You also need to be able to pay each of your employees and suppliers on time, so they don't discontinue doing business with you—this is key for longevity and stability in the long term.

Your Clients Must Be Credit-Worthy

Your clients must be credit-worthy. This is determined by the invoices being paid and the clients' ability to pay on time. In other words, if your customers are paying you late or not at all, then they won't qualify for invoice factoring.

The best way to prove that your clients are credit-worthy is with a good payment history on their invoices with you as well as their other vendors and suppliers. If this isn't possible because of the size of your client's business (for example, if they're one of the largest companies in Australia), then an alternative method would be showing a good payment record with other businesses similar to yours (i.e., those who provide services like yours and are located in similar locations).

You must control the collection function of your invoices, but you do not need to own them.

You must be able to control the collection function of your invoices, but you do not need to own them. Let's take a step back and look at invoicing for a moment. When you invoice someone, what does it mean? You are asking for payment on account of goods or services provided to the customer. This is important because it gives you a window of opportunity (typically 30-60 days) to collect your money before having to pay for those goods or services purchased from other vendors or suppliers.

With invoice factoring, all your receivables are turned into cash immediately at invoice value rather than waiting until they are paid out in full by your customers, which can take months and even years if there is an outstanding balance that needs collecting!

You Must Be Able to Pass a Background Check

You must have a clean criminal record.

You must have a valid social security number or EIN (employer identification number). If you don't have one, you can get one through IRS form SS-4, and they'll send it to you in the mail within eight weeks of filing.

You must have a valid driver's license or state ID card. This can be any type of driver's license, including an international driver's license if necessary! 

Conclusion

An invoice factoring facility can work for many small businesses, and that's why to engage with invoice financing companies to know how the process works before jumping into it blindly. We hope our article has helped you understand what makes you a good candidate for invoice financing and what kinds of businesses are likely to be approved by one or more lenders. Good luck!