An invoice factoring application can be completed in six steps, most of which require providing the information a factoring company needs to approve you for funding. The process can take from one to five days, depending on the number of invoices and the speed with which you provide additional information. Once you complete the initial process, you can access ongoing funding within 24 hours of issuing an invoice to an approved customer.
1. Submit Initial Business Information
While many invoice factoring companies now have an entirely online application process, most still require business owners to submit contact information. This will be the first step, and there is no commitment. A representative of the company typically will reach out to you within 24 to 48 hours to discuss factoring options and ensure factoring is a good fit for your business.
2. Upload Invoices
After an initial consultation or as part of an online application, you will need to upload the invoices you wish to factor. In most cases, you can also email them in with information about the debtor like its business name. This will help the factoring company assess the creditworthiness of the debtor and the volume of invoices it can expect from you.
3. Provide Additional Information
While the invoices usually have sufficient information, a factoring company may request additional information like accounts receivable aging reports or bank statements to verify payments. Your speed of funding often depends on how quickly you can provide this information, so if you need access to capital quickly, answering requests should be a high priority.
4. Review Factoring Contract
At this point, the factoring company will make an initial funding decision. Some business owners will get rejected. If your application is approved, the factoring company will provide you with a contract outlining the various costs, terms, and conditions of the factoring transaction. Every point of the contract is negotiable, and the primary driver for fees and terms is the perceived risk of debtors. Have an attorney or accountant review your contract and spend some time asking the company representative questions before signing.
5. Assign Invoices to Factoring Company
Once you sign the contract, the factoring company must assign the invoices from you to itself, so that it can collect the payments. This requires a notice of assignment, which is usually a short email or letter to the debtor informing them of the factoring relationship. Most factoring companies will offer borrowers the opportunity to make changes to the notice to make it more personal. In any case, if you would like to personalize it, you can send your own email explaining what is happening.
6. Collect Advance
Once the invoice is assigned, the factoring company will deposit the advance in your bank account. There are no payments to make and nothing else you need to do for this invoice. From here on out, all the invoices for this customer should go through the factoring company, and you will receive an advance within 24 hours of submitting it.
While invoice factoring applications will vary, most providers will follow the structure outlined above. If you plan to apply for invoice factoring, it makes sense to improve your application by preparing your invoices, aging reports, financial statements, and bank statements to make the process go smoothly. Remember that while the representatives at the factoring company are there to help, you should also retain some help to ensure that you are getting the best possible deal and that all the costs and terms of the agreement are clear.