Most invoice factoring companies are limited to purchasing invoices that never age more than 90 days. Accounts receivable financing typically is for businesses that issue 30 day net term invoices and have a history of getting paid in a timely manner. A business model that allows for bi-annual or annual payments may not be a candidate for factoring. Trying to finance an annual contract with a factoring company is also limited or unavailable.
The primary reason for this stems from the arrangement a factoring company has with its funding source, usually a bank. The bank lends money to the factor who in turn makes capital advances to their clients. When the bank is calculating the available credit it issues to the factoring company, all outstanding invoices that have aged over 90 days are considered a “non-performing asset” and therefore are deducted from their available credit line. Now there are cases where an errant invoice does go over 90 days. In these situations a recently finished job with a new invoice is swapped for the overdue invoice.
An important distinction is, the clock at the factoring company starts on the day of funding, not the date on the invoice. So a client may choose to submit an invoice to their customer and then hold and wait for a period of time (week or two or three) before submitting it to the factor for the advance. Thus avoiding some of the “funds in use” fees associated with the factoring.