The main consideration underlying successful invoice factoring for your business is the need to have creditworthy customers. The factoring company decides whether or not to finance an invoice based on the credit background of every customer, as opposed to the financial condition of your company, our client.
Once in place, AR factoring should allow the client to be awarded bigger and stronger contracts with customers who regularly insist on payment terms from their vendors.
Typically the factoring company will set a limit for each customer based on their credit history. You can pro-actively assist in getting the best credit determination for your customer by keeping good records of incoming payments. This means, making copies of each check that the customer sent you (a good practice anyway,) and matching up the deposits on your bank statement. This way the factor can verify the credit history by seeing checks from the customer being paid on a timely basis. While it may seem cumbersome, it could have a significant impact on receiving extra credit for a customer on a contract that is growing. There should be apps available that help make this process easier.
This is an example of thinking ahead of the debt financing process. While some business owners may dismiss activities like these as problematic, smart owners will see it for what it is – the proper way to insure the greatest access to outside financing. A factoring company will only be able to consider the information it has available, by providing better, verifiable credit history, you may maximize the ability to gain access to working capital.