Invoice factoring is a great way to keep your company’s cash flow healthy. One of the ways we help business is through invoice factoring. So we want to prepare you for the application process. We put together 15 things to know when submitting an invoice factoring application to a company like us.
1. Submitting a Haphazard Application
Getting funding through invoice factoring has one important requirement: an accurately filled application form. Inaccurate information will delay your application and may even lead to a denial of funding. Do provide factual information about the type of business you run, your revenues and expenses, and the necessary details about your customers.
In order to increase your chances of procuring funding, you need to ensure that you take factor invoices only from reputed customers who have good credit scores and pay on time. Having a strong and favorable online presence will also up your chances. You can form an LLC or Corporation instead of a sole proprietorship/general partnership to lend your business more authenticity.
2. Leaving Sections of the Application Blank
Another grave application form related mistake that is commonly made is leaving the sections blank. Missing information can never augur well with the concerned authorities, regardless of the reason. Not specifying requested information will lead to a delay in your application as factoring companies do not process it until they receive a completed application.
3. Entertaining Sluggish Customers
If you have habitually late paying customers, they’re probably not a good fit for invoice factoring. That’s because invoice factoring companies get paid only when customers pay the invoice amount. Hence, invoice factors prefer to gauge whether or not your customers are reliable payers. Factoring invoices from perpetually late payers can adversely affect your application. Further, if your customer does not pay the invoice, you will have to cough up the money, which may be problematic if you’ve spent/invested the advance amount.
4. Missing Directing Payment to the Factor
As mentioned, the invoice factor gets paid when the customer pays the invoice. This means the customer does not pay you but pays the invoice factoring company. Modern factors try to make things as flawless as possible so that your customers can continue with their usual payments. Your business gets an account number and PO box address, which can be used to remit payment. These remittance details need to be passed on to customers, failing which your business can be heavily penalized. Further, the invoice factoring company may also choose to no longer associate with you.
5. Not Considering Your Credit Score
One of the biggest advantages of invoice factoring is that your credit score is of no consequence to its approval. It has more to do with the creditworthiness of your customers. In any case, you will only do well by building your credit score. Go through your credit reports periodically and review them for signs of danger, such as an impending bankruptcy, tax liens, unpaid debts, and so on. These can land you in trouble going forward.
6. Submitting Inadequate Supporting Documents
In order for your factoring application to be approved, it needs to be supported by several important documents, such as receipts and order confirmations. It is best to complete this process with the help of professional financing computer programs rather than submitting documents online or sending them through fax or mail. Such software can diminish the risk of rejection and also speed up the process.
7. Failing to Mention Other Liabilities
Several business owners make the mistake of not disclosing complete information about their debts due to the fear of their factoring application getting rejected. However, invoice factoring companies examine public records and database to double check whether or not a company owes a debt or is a tax defaulter. Know that while your current liabilities may not be a problem, but concealing information can cause trouble for your application.
8. Not Reevaluating
Minimum Volume Certain invoice factoring agreements require that a minimum volume of invoices be generated each month. In such cases, not meeting the minimum requirements implies incurring minimum fees and higher expenses than the advertised rate, which can land you in a financial soup. It is, therefore, important to collaborate with a company that has no monthly minimum requirements.
9. Not Noticing Hidden Fees
Several factoring companies attempt to increase their profits by levying certain hidden fees such as credit check fees application fees, ACH fees, long-term contracts, monthly service fees, and monthly fees. In contrast, the rates they advertise are low. However, do not take the bait and choose a factoring company that amply specifies its pricing structure.
10. Not Including Descriptions of Goods and Services Provided
A crucial factor that leads to delayed payments is when businesses do not include descriptions of goods and services they have provided to the client on the invoice. This can lead to misinterpretations and misunderstandings when the client tries to verify whether or not they have already paid you. To avoid such situations, always include a brief description of each item in your invoice.
11. Directing Payments On an Already Factored Invoice
This could result in duplicate payments, which implies getting paid directly on an invoice that has already been factored. This is to be avoided at all costs as it is considered fraud. The invoice has already been purchased, and you are getting paid again for it. If this happens, your factoring company may lose trust in you, and you might also attract several penalties.
12. Failing to Specify the Terms
It is a good idea to use your invoicing to let your customers know about your terms, conditions, and policies regarding payments and refunds, estimated delivery time, and other information. This is also a great way of keeping your customers abreast of the changes in your terms.
13. Not Reiterating Your Terms
It is extremely important to be specific in stating and restating your terms and policies. These could be anything, from revisions, refunds, returns to time frames. While you may have addressed these concerns in your initial agreement, you will do well to reiterate your policies and let the clients know what they’re paying for. Doing so not only prevents the possibilities of a scope creep but also reflects your professionalism.
14. Including Unexpected Fees
Want to lose all your clients? If yes, one of the fastest ways of doing so is by including a list of additional charges that you never discussed with them to begin with. If your answer is in the negative (hopefully), make sure that they always know exactly how much they need to pay you by discussing all your policies and fees ahead of time. In fact, you can inform them of these factors even before you begin working with them. Explain your charges, additional fees, and other components before they accept your service. Itemizing can help you here.
15. Messing up the Invoicing Layout
As surprising as it may sound, a poor invoicing layout can easily project your company in bad light. Messy formatting, bad editing, spelling errors, and incorrect figures can not only make you appear unprofessional, but can also keep you from receiving your payments on time. Your clients will not take you seriously. It is, therefore, critical to design a great layout and verify all your invoices to detect and rectify such blunders before sending them out. Proofread, proofread and proofread!
We believe in doing business with good faith. We always will be here to help. Feel free to email us at firstname.lastname@example.org if you have any questions.