Yes. Unlike many traditional funding sources that require extensive credit histories and collateral to be approved for funding, invoice factoring is mainly concerned with the quality of your invoices. Since the quality of a company’s invoices is entirely separate from the age of the company, new companies with strong customers can qualify for factoring services without difficulty.
One of the main selling points of factoring is its flexibility and streamlined set of qualifications.
Many businesses that are unable to secure funding through traditional means are often able to obtain funding through invoice factoring. This guide explains some of the most commonly asked questions regarding the credit requirements of factoring.
Yes. Invoice factoring is mostly concerned with the quality of the invoice and the likelihood if its successful collection. Invoice factoring is not debt, it is an advance of payment on accounts receivable. As such, the usual credit requirements of other forms of business funding are not as important. Although, since a business with bad credit would be seen as a higher risk, you may pay for more factoring services than a business with good credit.
Good personal credit is not a requirement for invoice factoring. A high-quality invoice is the main basis upon which a factoring decision is made, as well as the creditworthiness of your customers. However, since patterns in credit history and credit events may indicate potential difficulties in collecting on factored invoices, your personal credit history is still relevant to a factoring decision.
Ultimately, factoring places a high value on the creditworthiness of your customers. Since a large portion of the risk of collecting an invoice centers on whether your customer is going to pay, and pay in a timely manner, it is vital for a client’s customer to have a good payment history. As such, most factoring companies put a large emphasis on the creditworthiness of your customers. This in large measure frees a company up from the onerous credit requirements banks use in credit decisions and allows them to obtain funding in many situations that would not work in traditional business financing.