- 06 Apr
How To Get Approved For Factoring
Below are 5 tips about how to get approved for a factoring facility. These are simple things that you can do to improve you chances of being approved for factoring:
1) Invoice in arrears - factoring companies are all about the quality of your sales invoices. They will often overlook poor financials if your debtor book is strong. One of the key issues for a factor is ensuring an invoice is enforceable and hence can be collected. A key aspect of this is checking that the goods or services have been delivered or performed, if the invoice is raised before the goods are delivered or the service performed it can be uncollectable - hence ensure that all your invoices are raised in arrears or delivery.
2) Tidy up your sales ledger - make sure your debtor ledger is in the best condition possible - this will persuade the factor that it will be simple to collect reducing the fees that they charge and making them more relaxed with the risk. Go through and chase any overdue debts and bring up to date any credit notes that you haven't got around to issuing. Make sure that all your debtors are correctly identified, the factor will be keen to establish who your customers are and correct trading names and contact details will help.
3) Show why you want factoring and demonstrate that the funding will be enough - one of the key concerns of the factoring company will be to ensure that you will have enough cash to keep trading and it will make them more relaxed to see that you are planning to use the funds as working capital (rather than buying a Ferrari!).
4) Be open and honest with the factoring company - don't try to hide things from the factor. They will undertake checks that may well expose anything that you try to hide and this will lead to distrust. If you have had problems, tell them, they are likely to be sympathetic.
5) Have all your information ready - most factors will send you a list of what they need to see, this may include debtors ledger, creditors ledger, sales invoices invoices, purchase invoices, delivery notes etc. Make sure that you have everything in order and ready for their visit. The factor will want to see a clear audit trail or paper trail from receiving an order through to delivering the goods and getting paid, make sure that these are available.
Following the 5 tips above will help you increase your chances of getting approved for factoring.