In order to effectively consider receivables factoring as a commercial finance option there are two elements that must be in place. The first is the creditworthiness of the customers. A factoring company calls your customers, “account debtors†or payers of an obligation. A factor’s criteria would be that these account debtors have some sort of reasonable public credit history. Meaning that by checking a credit agency like Dun & Bradstreet, the customer has been given credit terms in the past, and pays their bills fairly on time. So invoice factoring needs to have good customers.
The second element in this discussion will be, will the customer acknowledge to the factor that they have received the invoice, the obligation to pay, and they accept responsibility to pay this invoice in a timely manner. The threshold for determining this “verification†varies from factor to factor, client to client, customer to customer. Meaning, if there is a troublesome quality to the transaction, the verification process, or sign off on the invoice will be more involved, conversely in situations where there is a customer who is billed on a regular basis, the verification can be somewhat routine; like a simple email checking on the status of an invoice.
Having good customers who are willing to sign off on your invoices will be a well done recipe for invoice factoring.