How to Improve Your Invoice Factoring Application: A Step-by-Step Guide

Invoice factoring lets a business convert its outstanding invoices into cash by selling them to a factoring company or factor for a fee. Unlike traditional loans that often require personal credit scores as part of the application and approval process, factoring lines of credit are typically backed by a company’s assets and are the primary factor for approval.

BlueVine offers invoice factoring for companies that need additional working capital. They provide up to a $2.5 million invoice factoring credit line, with advance rates that range between 85% to 95%. The discount rate is typically between 0.3% to 1% per week.

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Below are 7 ways to increase your chances of getting approved by a factoring company:

1. Form an LLC or Similar Business Structure

Factors are concerned about fraudulent companies with unverifiable invoices. This means that you need to demonstrate the legitimacy of your company to better your odds of getting approved. Forming an LLC not only reduces your personal liability but it also demonstrates business savviness that factors would want to see in an invoice factoring applicant.

Filing as an LLC or corporation isn’t difficult. You can do this by contacting your local Secretary of State for guidelines, or you can go through an online service such as RocketLawyer. Whatever method you choose, you should, of course, discuss the tax and legal consequences of changing your business structure with your accountant and lawyer.

2. Register Your Business with Secretary of State

Registering your business with your Secretary of State is important because factoring companies will verify that your company is indeed a legitimate business. Factors will check to see if you are in good standing with your Secretary of State and if you are current with your taxes. Registering will therefore help you improve your invoice factoring application and get approved for financing.

3. Create a Company Website

Your business must have a social media presence to show that it’s real. Having active LinkedIn, Facebook, and Twitter accounts can improve your company’s online visibility. Additionally, the context of your social media posts is equally important, so ensure that they are relevant to the line of business that your company is in.

Aside from business social media accounts, it’s also important to have a comprehensive business website to establish your online presence. Unfortunately, even though most customers nowadays search online when they need to find certain products or services, not all companies have active websites. Factors and other easy business loan providers find it more difficult to establish a company’s legitimacy if they don’t have a website.

Another way for your business to be found online is through customer reviews on sites like Google, Facebook, Yelp, and Trustpilot, as well as industry-specific sites like Fit Small Business, Angie’s List, and TrustRadius. Encourage customers to leave feedback on these sites. Aside from helping your company build a good name that can attract potential customers, online reviews can also help you improve your invoice factoring application.

4. Increase Your Personal and Business Credit Scores

While most factors won’t do hard credit checks because a personal credit score is not really the basis when you improve your invoice factoring application, it’s still important to maintain good personal and business credit. Your credit score reflects how creditworthy you are and can definitely help.

Review your personal and business credit reports regularly to ensure they contain accurate information. There are some factors that report your payment history to credit agencies and this will help build your business credit. Finding a factor that reports to credit bureaus will not only help you meet your temporary need for working capital, but it will also help boost your business credit score.

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5. Start Factoring with a Big Client

The client invoice you choose to factor is one of the most important criteria for getting approved for invoice factoring. Most factors only accept invoices from B2B and B2G companies. To ensure that your application will be considered, choose an invoice from a big and stable customer.

An invoice from an established client will go a long way in convincing factors to fund your business because a large, stable customer is likely to pay their invoice on time. And because factors make a percentage of your invoice, a large invoice would incentivize them to accept your application.

If your personal or business credit score is less than ideal, factoring using a reputable customer allows you to leverage their creditworthiness and it increases your odds of obtaining accounts receivable financing.

6. Keep Good Documentation

It is essential to have business documents such as signed customer contracts, purchase orders, and customer information at the ready to back up your invoices and expedite the application process. Since invoice factors typically require you to integrate your accounting software, maintain good records so the information they pull is accurate and updated.

Moreover, ensure your contracts and paperwork aren’t missing important details. Make sure your documents are accurate and include both first and last names of all contacts, along with other relevant contact information. If you want a fast business loan, ensure that you keep the proper documentation.

7. Make Sure You’re Aligned with Customers

With any invoice you attempt to factor, make sure you’re properly aligned with your customers. Ensure that your customer verifies that the service has actually been completed and agrees to a specific date on which the payment is due. The payment details indicated on the invoice must be accurate, specific, and properly acknowledged by your customer.

One important criterion that affects a factor’s decision to fund your cash flow and working capital loan needs is the strength of your business relationship with your customer. While factors understand that mistakes and misunderstandings can unintentionally happen, uncovering them with the first invoice you submit for an advance may not earn you a good first impression.

Moreover, you have to remember that when you factor an invoice, the factoring company will be the one to collect the invoice from your customer. They will then give you the money once the invoice is paid and take a fee as their revenue. It’s important that your customers understand who’s collecting their invoice and why.

How Invoice Factoring Can Help Your Small Business

Invoice factoring allows B2B, B2G companies, and sometimes B2C companies convert their outstanding invoices to immediate cash for a fee. This helps small businesses with their cash flow and working capital needs. Normally, when a company is on net terms with their customers, they will encounter cash flow problems and factoring is a way to unlock the value of outstanding invoices.

A typical invoice factoring transaction involves three parties: the business who issues the invoice, the customer who owes payment on the invoice, and the factor company who buys the invoice. The factor usually advances up to 90% of the invoice. The customers will then pay the factor the amount they owe when due, and then the factor will release the remaining 10% to the company less the fees.

Bottom Line

Small businesses can convert their slow-paying invoices into immediate cash to solve their cash flow problems through invoice factoring. Because credit scores are not really the basis when you improve your invoice factoring application, invoice factoring is ideal for businesses that don’t have enough credit history. Be well-prepared for your factoring application using the above tips to ensure you’re approved.

If your company is need of additional working capital funds, you may want to factor your outstanding invoices. BlueVine provides up to $2.5 million invoice factoring credit line. Their advance rate that ranges between 85% to 95%, with discount rate from 0.3% to 1% per week.

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