Many small business owners are still confused about factoring their accounts receivable. It is important to know what a commercial invoice is, because a real invoice is the only method to get funded using factoring. The factoring company has to be able to make an advance on a debt due from an account debtor, or customer. So whether your company provides a product or service, the work has to be completed, accepted and the amount owed has to be verified as due and owing without set-offs or credits. No pro forma, or pre-billing, where your customer may allow a receivable to be generated before the work has been done. This is unacceptable for financing in terms of factoring. Remember the customer’s account must first be checked for their credit rating using an independent credit service.
The bottom line is; the factoring company must be able to independently collect on the receivable if necessary to insure its payment. Hypothetically the factor will have a clear case if it should come to a collection action. Make sure you have properly set up the business relationship with your customers in regards to issuing new receivables to help secure commercial factoring.