Accounts Receivable Factoring -- Qualifying Guidelines

Factoring receivables is simple, and yes, for the most part, easy. Still, it’s a financial move, and as any (good) financial consultant will tell you: always ask questions. Lots of ‘em.

You may have heard of the nervous owner who’s been previously turned down; the growing business with little to no history ... most factoring questions center around credit and with good reason. Credit, especially while the economy is mending itself, is a pretty important aspect to business in America.

 

So, does factoring receivables have a qualification process and how does it work? Simply put: Yes, factoring has a qualification process. But factoring companies are not in the business of loaning money; factoring companies are service providers. And the qualification of an invoice factoring transaction depends on two things primarily, and neither of them are business credit history.

 

First, a factoring company will place little emphasis on your credit, because it is not your bills they are collecting – it is rather, your customers’. Which is why the debtors’ pay-worthiness holds more weight than the business selling the receivables. The second “qualification” consideration places emphasis on the value of the receivables. In other words: the business’s outstanding invoices are essentially viewed as an asset, and many times the value of this “asset” will determine whether a factoring company will indeed “qualify” a business for A/R factoring, or at which rate the invoices will be factored.

Perhaps the most basic qualification for factoring though, is that the business is profitable.  Remember: factoring companies help you create capital, not debt. So long as that business stays in the black, a factoring decision can profitable for all involved.