No Pre-Billing Allowed

To a factoring company, an invoice is not an invoice until the work has been completed. The factor will not make an advance on a job that is not finished. This is called “pre-billing.” This is the case even if the arrangement is completely within agreeable terms between our client and their customer and has been going on over an extended period of invoices. For accounts receivable to be considered “live,” the factoring company must be able to independently collect from the account debtor. If the debtor doesn’t consider the job done, the factor will not be able to get paid. Invoice factoring requires contact with the customer to verify that the job is accepted and the invoice is in the accounts payable system with the factoring company’s address. Until the customer does this verification, the funding will be held up.

This situation usually comes up in two ways; the client is so new they badly need capital to get the job done. The client in this case is terribly under capitalized and needs help from someone other than a factoring company. The second is when the business model was set up originally to accept pre-billing. Sometimes this might be a requirement of the customer, or lack of debt financing forethought by the borrower when setting up the model. Tweaking the business model a little can very easily remedy the problem if the borrower is motivated.