An invoice is not an invoice until the work has been completed. The factor will not make an advance on a job that is not finished. Arrangements for partial payments before the work is completed is considered “pre-billing.” This is the case even if the arrangement is completely within agreeable terms between our client and their customer and has been going on over an extended period of time. In other words, the deal has been going this way for some time why rock the boat.
For a receivable to be considered viable the factoring company must be able to independently collect from the account debtor. The obligation is spelled out, all parties agree and no further work must be done with regards to the invoice being paid in a timely manner. If the debtor doesn’t consider the job done, the factor will not be able to get paid. Invoice factoring requires contact with the customer to verify that the job is accepted in whole and the invoice is in the accounts payable system with payment to be made directly to the factor. Until the customer does this verification, the funding will be held up.
This situation usually comes up when the client is so new they badly need capital to get the job done. The client in this case is terribly under capitalized and really needs help from a resource other than a factoring company. Or it might come up when the business model was set up originally to accept pre-billing. Sometimes this might be a requirement of the customer, or lack of understanding about debt financing by the borrower when setting up the arrangement. Tweaking the relationship a little can very easily remedy the problem if both parties are motivated.
This does not rule out a contract with specific milestones for which billing can occur once the work has been accepted for each milestone. So while the entire job might take many months, by having milestones set up in the contract it makes factoring the account workable.