It’s very important to realize when using factoring invoices for growing a business, the contract work or product order being done must be totally completed and accepted by your customer. Submitting an invoice to be factored by the factoring company prior to the work being done is called pre-billing.
One example to illustrate this is advertising campaign transactions. A magazine publisher has orders from a group of customers who plan to advertise in an upcoming issue. This means the ads have not run and the customer has not received the full service which gives them grounds to not pay the invoice. Permanent placement recruiter transactions are the same in that a contract allows for a candidate to be declined.
The crux of pre-billing and why factoring companies are reluctant to fund these invoices is the chance for a customer to not pay the invoice. 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. Should a dispute occur, evidence the service or product has been delivered and properly accepted is crucial.