When your customers pay on 30-, 60- or 90-day terms, your cash flow can stall even while your business is growing. Accounts receivable factoring can help bridge that gap. It gives you access to working capital by financing qualifying invoices, so you can cover payroll, pay suppliers, and take on new work without waiting for every customer to pay.
If you are considering factoring, it helps to understand what qualifying usually involves. Here is what to expect.
What a Factoring Provider Looks At
Factoring works differently from most financing. Instead of focusing mainly on your business history and personal credit, a factoring provider looks closely at the invoices you want to finance and the customers who owe them. In general, the review centers on three things:
- The quality of your invoices. They should be for completed work or delivered goods, and they should be payable under clear terms.
- The ability of your customers to pay. Because your customers are the ones paying the invoices, their creditworthiness is often central to the decision.
- How you bill and collect. Consistent invoicing and a clear collections process make the review smoother.
Invoice Requirements
Most factoring providers want to see invoices that are straightforward to verify. Commonly, that means:
- Invoices issued for work that is complete or goods that have been delivered
- Clear payment terms and amounts
- Invoices that the customer is obligated to pay, without outstanding conditions
- Invoices that are not already pledged to another lender
If your invoices are unclear or incomplete, fixing them before you apply can save time.
Your Customers Matter as Much as You
Many business owners are surprised by how much attention goes to their customers. A factoring provider wants confidence that the businesses owing you money will pay. If a large share of your receivables comes from one customer, or from customers with a history of late or disputed payments, that can affect how your application is reviewed.
If you are unsure how your customer mix will look to a provider, review your accounts receivable aging report. It shows which invoices are current and which are overdue, and it gives you a clear picture before you start the conversation.
Documents to Prepare
Having your records ready helps the process move faster. Depending on the provider, you may be asked for:
- Recent invoices you want to finance
- An accounts receivable aging report
- Basic business information and your contact details
- Information about the customers who owe the invoices
Common Reasons Applications Stall
Some issues come up often and can slow down an application:
- Disputed invoices. Invoices a customer has questioned are harder to finance until the dispute is resolved.
- Heavy concentration with one customer. Relying on a single paying customer can limit how much can be advanced.
- Unclear billing records. Missing purchase orders, inconsistent invoice details, or unclear terms create questions.
- Invoices past due. Older receivables may not qualify.
Addressing these in advance can help your business present a cleaner picture.
Next Steps
The best way to find out whether factoring fits your business is to talk with a provider about your specific situation. Be ready to share a sample of your invoices, your customer mix, and your current cash flow needs. A clear conversation early on can help you understand your options and what to expect.
Frequently Asked Questions
Do I need good personal credit to qualify for factoring? Factoring decisions focus heavily on your invoices and customers. Each provider has its own criteria, so ask about the specific requirements.
Can a new business use factoring? It may be possible, depending on the quality of the invoices and the customers who owe them. Speak with a provider about your circumstances.
How quickly can I access funds? Timing varies by provider and by how complete your documents are. Ask for the expected timeline during your review.
Factoring is a financing tool, and it is not the right fit for every business. Provida Financial is a Calgary-based lender that has funded Canadian businesses for over 10 years. We work with businesses whose financing needs fall outside traditional bank criteria. Tell us about your business, and a member of our team will contact you within one business day.