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Is Invoice Factoring Possible with Bad Credit?

Posted by Aaron Zahedani on Fri, Feb 19, 2021 @ 09:00 AM

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There are times when you may be experiencing a cash flow crunch, or have little or no credit history and you believe traditional forms of finance may just not be an option. During these times you may also worry that invoice factoring companies will also turn you down because of some form of poor credit history.

You may be concerned that every form of ‘lending’ must require a credit check and a lengthy examination of how your business is performing now or has performed in the past. The good news is that invoice factoring has a different set of requirements that do not encompass your potential poor credit. The process is simple, and the news is good.  

  • Factors do look at your credit score but are not as critical as banks. They are interested in the creditworthiness of your customers. 

  • The credit check will be performed on your customer, and if your customers pay in a timely manner you will more than likely qualify to factor your accounts receivable. Once your invoices are factored, it is the factor that collects the money directly from your customer, and forwards you the amount of the invoice minus a factoring fee. 

Forbes Contributor, Cheryl Conner, describes alternative financing, and specifically, invoice factoring, as a lending alternative that could actually increase a company's revenue.  

The added benefit of the checks your factor will run on your customers is that you will have a clear indication of the people with whom you are choosing to do business. They will help manage your accounts receivable and make sure your customers continue to pay regularly as well as promptly on each invoice.  Factors have a deep knowledge of specific industries and can provide you with so much more than advance payment of your invoices.  

Now that we have established that poor credit will not be an influencer, there are additional benefits to factoring your invoices  

  • Factoring does not create any additional debt, as factoring is not a loan, it is a purchase of your open invoices

  • You have the flexibility of choosing which invoices your factor

  • Your funds are often available within 24 hours

Of course, knowing that your possible poor, or lack of established credit history will not inhibit your ability to factor, there are a few points to consider to make the process as simple as possible, and make sure that once you factor you continue to be successful.      

  • Keep on top of your financial statements and invoices

  • Measure your factoring costs against the value of factoring to your company

  • Clearly read and understand your contract with your factor

  • Establish open communication with your factor so you are on the same page with invoices and potential issues with your customers

It is important to remember there are many companies, both large and extremely successful, and small but growing quickly, who choose to factor their invoices as the smart way to increase cash flow. 


Topics: Alternative Financing, About Invoice Factoring

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