Invoice factoring is a type of financing that allows you to collect immediate cash on your invoices, helping you boost cash flow. Many businesses are hampered by the delays as they wait for clients to pay invoices. With factoring, you can enjoy a more reliable source of income. You may be wondering what the requirements are to qualify for invoice factoring.
How To Qualify for Invoice Factoring
1. Provide Proof of Business Organization
Since invoice factoring is only provided to businesses, you must have some type of legal business structure. You’ll need to provide proof of this, such as articles of incorporation, articles of organization, or a DBA filing with the state. You should also have a business bank account and a tax ID number. Transportation companies will need to provide proof of authority with a USDOT or MC number.
2. Your Business Must Be Solvent
Factoring companies will check to make sure a business doesn’t have any outstanding liens or isn’t in the process of filing for bankruptcy. If you have any liens or unresolved debts, you should resolve them so that you can qualify for factoring. If you owe taxes to the IRS or your state, you may still qualify if you can show that you have a payment plan that is current. You may also need a subordination from the tax authority if a lien has been filed.
3. You Must Have Commercial Clients
Invoice factoring is a type of business-to-business financial service. Government contracts are also acceptable. A business that gets paid by retail customers doesn’t qualify for factoring.
4. You Must Have Invoices to Factor
While this requirement may seem obvious, it’s worth noting that you need to provide invoices for completed work. You can’t, for example, factor invoices that you expect to generate in the future. While some factoring companies will work with start-up businesses, you will not be able to generate cash flow from factoring until you have completed your service and generated a valid invoice. For existing businesses, you may need to show the factoring company an accounts receivable aging report.
5. Your Clients Must Be Credit-Worthy
When you apply for a bank loan, the bank analyzes your credit. Factoring companies, however, are more concerned with the credibility of your customers as they will be the ones paying the invoices. Before you can factor invoices, the company will check the commercial credit of your clients.
6. You Must Be Able to Pass a Background Check
Financial institutions, including factoring companies, look at a potential borrower’s character and personal history. It’s more difficult to obtain financing if you have a criminal record, though this depends on the nature and severity of the crime. For example, a conviction for fraud or financial crimes makes it extremely difficult to obtain business financing.
7. Each Factoring Company is Different
While these are reliable guidelines used by factoring companies, you also have to keep in mind that each company is different. Requirements will differ slightly depending on your industry and the company you’re working with.
Are you seeking a trustworthy invoice factoring solution for your business? Riviera Finance has been providing accounts receivable factoring to businesses to help with cash flow and business growth in many industries for more than 50 years. To learn more about the benefits of invoice financing, contact Riviera Finance today.