If your company uses MSA’s (Master Service Agreement) and SOW’s (Statement of Work) it is important to specify conditions that make invoice factoring possible. Factoring relies on important considerations concerning your business model that might make it easier to get funding. How the SOW is structured with customers is more important than you might think. Just a slight change on how you detail your services in a SOW could alter whether or not you may get accounts receivable financing.
For example when initially setting up your SOW with the customer, specifically outline the work to create milestones or deliverables of completed work that allow you to invoice. This is preferable to billing “along the way†also known as progress billing. By completing a milestone the customer is obligated to pay for something that they received.
Pre-billing for services is always a problem for invoice factoring. Make sure the SOW has tight guidelines on payments for work that has yet to be completed. When it comes to factoring you are assigning the proceeds of an obligation of payment to a third party (the factoring company). If the work has not been completed and accepted the customer may have legal “outs†when it comes to paying the bill. Invoice factoring at a base level requires an “agreement to pay” without conditions by the account debtor.