Factoring Application Mistakes To Avoid

Many companies seek accounts receivable factoring financing because they have cash flow problems that usually stem from the fact that their customers pay their invoices in 30 to 60 days – however, these companies can’t afford to wait that long for payment.

It’s common for prospects to wait until the last possible minute before applying for factoring, usually because they are hoping that an invoice will pay early and solve their problems. This rarely happens. Instead, the prospect is left with little time to look for a solution and then has to hurry through the application process, resulting in mistakes that delay the process and could lead to an application rejection.

This article discusses the most common factoring application mistakes so that you can avoid them:

  • Hard-to-read applications: This mistake is perhaps the most common, yet it is the easiest to fix. Many prospects fill out the applications by hand and fax them to the factoring company. It’s not unusual to get applications exhibiting sloppy handwriting. Illegible writing creates problems for the underwriting department, who then has to contact the prospect to confirm information they could not read clearly. Additionally, hard-to-read applications also look unprofessional and reflect badly on the applicant.
  • Missing sections/information: Another common mistake is leaving sections of the application blank. This mistake often happens either because the prospect is in a hurry or they are not comfortable providing certain information (e.g., corporate tax liens) — fearing it may reflect badly on their company. Not including requested information will only delay your application because factoring companies will not proceed until they have a full application package.
  • Missing backup documentation: Like most business financing applications, factoring applications require that you submit additional backup documentation, including accounts receivable aging reports, customer lists, and other critical information. These documents are needed before the factoring application can be processed and a proposal provided. Be sure to include everything that the factoring company requests.
  • Wrong information: Purposely providing wrong or misleading information is the most serious mistake and will likely result in your application being rejected permanently. Not only is this strategy a bad idea, it almost never works. Factoring companies usually cross-check application information against publicly available information and records (e.g., bankruptcy records, lien records, and so on) to find discrepancies.

Provide accurate information

This last point – providing wrong information – is very important. Business owners are often tempted to embellish applications or omit critical facts because they fear that negative information will get their application rejected. While that may be true, remember that most factoring companies are used to working with businesses in financial distress. And in many instances, factoring companies can find solutions or workarounds to many of these situations – provided that you are upfront about them.

Be upfront about problems

Being upfront about things also positions your company as trustworthy, which is critical to success. Hiding or embellishing negative information in an attempt to deceive the factoring company will only make them suspicious and more likely to decline the application. Is there a chance that your factoring application will be rejected if you disclose negative information? Yes. However, you’re better off knowing this information sooner, rather than later.

By the way, if you are applying for this type of financing, here is one trick to improve your chances of success.

Get a factoring quote

We can provide factoring lines with high advances at low rates. For more information, get an online factoring quote or call (877) 300 3258.

Disclaimer: This article is provided for informational purposes only and is not intended as legal/financial advice. Please get competent financial/legal advice if you need it.