Invoice factoring companies are limited to purchasing invoices that do not go uncollected over 90 days from funding. Accounts receivable financing typically is for businesses that issue 30 day net term invoices and have a history of getting paid timely. A business model that allows for bi-annual or annual payments may not be a candidate for factoring.
The primary reason for this stems from the arrangement a factoring company has with its funding source, usually a bank. The bank lends money to the factor that makes capital advances to their clients. When calculating the available credit to the factoring company, all outstanding invoices that have aged over 90 days are considered a “non-performing asset†and therefore are deducted from their available credit line. Now there are cases where an errant invoice does go over 90 days. In these situations a recently finished job with a new invoice is swapped for the overdue invoice.