Pitfalls to Avoid When Factoring Invoices
Factoring invoices is a fast and simple way to secure quick cash for your business. However, it isn’t always plain sailing. There are still some areas you need to keep a close watch on if you want your invoice factoring experience to go smoothly. Here are five common pitfalls that you should be careful to avoid.
1. Your Customer Is Not Creditworthy
The success of your factoring application depends less on your creditworthiness and is more dependent on your customers’ credit history. If you submit invoices to us and we find that the clients connected to those particular invoices are not creditworthy, we would not be able to proceed. There is not much that can be done about this. Always check the creditworthiness of your clients before you submit your invoices.
2. The Invoice Exceeds The Credit Line
There is a limit to the amount of credit that a factoring company can grant to our clients. If you submit an invoice and its total exceeds the credit line we have offered you, we will not be able to factor that invoice. Always manage your credit line and ensure that it is not being exceeded. If you find yourself in a pinch, it is possible to negotiate a credit line increase.
3. The Invoice Can’t Be Verified
Factoring companies generally verify invoices prior to granting the funds. We do this to ensure that the work has been completed and that your client is happy – and thus, more likely to pay. If your client should refuse to verify an invoice, the factoring company cannot factor it. Communicate with your customers and do your best to ensure their cooperation with you for your factoring.
4. The Customer Refuses to Pay The Factoring Company
Your customer is required to pay the factoring company directly. It may happen that they will refuse to do so. If they do, you will need to work with your factoring company and perhaps seek legal counsel.
5. You Do Not Complete Delivery
If you are passing an invoice on to us for payment, it is vital that you ensure the work being charged for has been completed, or that you have delivered the products that were ordered. An invoice is unfactorable until you have fulfilled your side of the bargain – not to us, but to your client.
For more information on factoring invoices, accounts-receivable factoring, and other alternative forms of business lending, contact Kore Capital.