For the most part, a factoring company will be 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 features bi-annual or annual payments will not be suitable for invoice factoring. Trying to cash out an annual contract with a factoring company is also not within the factoring capability.
The reason for this has to do with the arrangement a factoring company has with its funding source, usually an institutional bank. The bank has a facility to lend 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 may be considered a non-performing asset and therefore are deducted from their available credit line. So having over 90 day aged invoices can be detrimental to the factors availability, thus strategically important.
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 to pay off the overdue invoice.
An important distinction to remember, the clock at the factoring company starts on the day of funding, not the date on the customer’s 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 possible extra fees associated with normal factoring.