In order to use accounts receivable factoring for a growth business, the work being performed must be completed and accepted. Submitting an invoice to be funded prior to the work being done is called “pre-billing.” A good example of this would be with products being shipped in stages. You cannot invoice for the entire production sold until each batch of product reaches its destination.
The concept of pre-billing and why a factoring company will not fund those invoices is the potential for the customer to refuse to pay the invoice and win in court on a collection action. Without proof that the service has been fully rendered or the purchase order fully received, the court will be reluctant to side with the collector. A factoring company has to know that their collection rights are solid in order to mitigate the risk involved in making an advance on invoices.
Due to the verification process of contacting the customer to ascertain the invoice is live, the collection issue is rarely required. It just means a pre-billed invoice will not be funded until the work is completed.