What Requirements Do You Need to Qualify for Invoice Factoring?

Updated: Sep 14

Invoice factoring has become an easy working solution for both startups and established businesses. As long as you meet the requirements, your business has the qualifying invoices and are working within certain industries, regardless of its size or age funded, Porter Capital Corporation can help get the working capital you need. In general, your business needs to operate on B2B invoices or accounts receivable with history of payment. The interesting part is that any business can easily qualify for invoice factoring without any long-term financing requirements. If you have B2G and B2B invoice due within ninety days and no legal issues, qualifying for invoice factoring is a breeze.

Other types of financing companies, however, consider annual revenues and credit scores significant for the businesses to qualify for loans. There are three primary factors that factoring companies consider while qualifying businesses for invoice factoring:

  • Who are your customers: Your invoice must be B2B business B2G customers. The customers you invoice must have established businesses and good credit scores. The factoring company needs to feel comfortable that your customers are reliable and will pay off invoices.

  • Due payment time of invoices: “when your invoices are due” is an important factor. They must be payable and due within 90 days. They should not be unencumbered by different loans.

  • Credit History: Your business must have a clean tax and legal history for invoice factoring.

What makes invoice factoring an easy financing solution is its viable process. The qualification does not depend on the business’s credit history, but a customer's credit history. That is why many businesses easily get the funds they need to keep their cash flow running. Traditional banks, on the other hand, involve long and cumbersome processes as well as time to approve the loans. In short, qualifying for factoring is way easier than other financing solutions. Luckily, factoring companies have simple requirements that businesses need to qualify for invoice factoring. Here we include a list of key requirements if your business wants to qualify for invoice factoring.

Requirements to Qualify for Invoice Factoring

You must have a Business

Factoring is for businesses only. While some factoring firms work with partnerships and sole proprietorships, the main preference is to work with businesses that are formalized and have a corporate structure such as Limited Liability Company and corporations.

Your Business Deals with government or Commercial Clients

As mentioned earlier, to qualify for the invoice factoring, it is important to have reliable clients. It is because factoring plans work through purchasing your accounts receivables. They can only purchase the invoices, if you have clients are government entities and commercial companies. If your business has retail customers, a factoring company will not purchase due invoices.

The Commercial Credit of Your Client is Good

This is no doubt one of the most pivotal benefits of the invoice factoring. The funding from a factoring company is based on the invoice’s credit quality rather than your business’s credit history. That means the commercial credit of your customers must be good. Factoring companies typically pay high-quality invoices by determining the credit quality and assessing the commercial credit line of your customers.

Your Business must have Profit Margins above 10% to 15%

Invoice factoring works bests with reasonably high-profit margins because of its cost. If you have a large business set up, your profit margins must range within 10%to 15% to qualify for invoice factoring. However, if you are a startup, it is best to have a margin of up to 15% to qualify easily.

Your Invoices should not have Encumbrances and Liens

Remember that you cannot finance invoices that already have been pledged to different institutions s as collateral, such as financial institutions or banks. Your invoices can be encumbered if any financing institution files “all assets” line at the time of providing funding.

In simple words, if a business' accounts receivable has been pledged, the other finance company needs to sign an agreement for subordination before the invoices are factored. Besides this, any type of tax liens can encumber your account receivables. Your business needs to resolve all liens before factoring company finance your invoices.

Business’s Personal Background

There is no denying that personal background of any business matters when it comes to qualifying for funds. Whether your business needs to qualify for factoring or some other type of financing, its reputation and background are determined by financing companies. Factoring companies precisely does that to check applicant's criminal records and other similar issues.

How to Begin the Process of Invoice Factoring

  1. You need to contact a factoring company, like Porter Capital

  2. Negotiate and establish working conditions

  3. Provide documents and do paperwork after accepting a proposed offer

  4. Review your final offer

  5. Begin invoice factoring if you met and qualified the requirements, get funded

With invoice factoring, you do not need a strong financial statement or credit history as they are secondary requirements for factoring companies. If your business the above-mentioned criteria, you can easily receive funding for the business within 24 hours. Thus, make sure that you know and meet the requirements that can help you get financed without any hurdles. Head over to www.portercap.net/apply to get started and let us help bring you working capital, easy and fast, only at Porter Capital Corporation.

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2112 1st Ave. N.

Birmingham, AL 35203