Factoring companies rely on the creditworthiness of the customers who purchase goods and services from its clients. On a day to day basis the factor is checking the credits of the customers in order to make funding decisions. Indeed one of the main benefits of invoice factoring is the ability to get working capital from finished work or accounts receivable. But recently a by-product of the economic downturn is once creditworthy companies are beginning to see their credit ratings slip. As customer payment terms start to stretch out and become late, the rating suffers. The credit rating is a good indicator of how current a customer pays their bills.
Once the credit of a customer becomes an issue, the factoring company will start to back off from purchasing invoices. The result of which is, the factoring client begins to grumble about needing more capital. In reality, the customer at this point probably has late outstanding payments which caused the decrease in funding availability. It is critical for the client to understand that the pressure needs to be put on the customer to get current with their payments, rather than trying to squeeze more advances from the factoring company. Because of the close hands on relationship that is typical for invoice financing, a client who pro-actively goes after late payments will enjoy the full benefits of increased capital access.