Most factoring applications proceed quickly if the client company is well prepared and does not have liens, legal problems, or tax problems. Actually, many factoring companies can implement a factoring line in a week or two if everything goes smoothly. However, a number of things beyond the control of the factor could derail an application.
Here are the most common roadblocks to having your invoice factoring application approved:
- Incomplete/missing documentation
- Open UCC liens from previous lenders
- Unpaid federal tax liens (FTLs)
- Unpaid payroll taxes
- Open judgements
- Owner with a criminal background
- Uncooperative customers
- Customer credit
Here is an explanation of these roadblocks:
Item 1: This roadblock is obvious, but it’s the most common reason factoring applications are rejected. The applications are missing key components. Thus, the invoice factoring company can’t make a decision.
Items 2 – 5: These roadblocks are categorized as encumbrances. These items can create liens on your accounts receivable — liens that carry a higher priority than the factoring company. Like most business financing institutions, factoring companies need to be able to secure collateral (invoices) and be in first position. All of these items can prevent the factoring company from getting the priority it needs.
Item 6: Most factoring companies perform background searches on company owners. Many factors decline working with individuals having certain criminal backgrounds. This decision varies by factor.
Item 7: If you want to use factoring, your customers need to comply with the decision because they need to sign a notice of assignment that advises the customer of the relationship and specifies the proper payment address. Their refusal to acknowledge this document can derail the factoring process.
Item 8: The whole premise of factoring is that your company gets an advance for invoices from slow-paying, but creditworthy, customers. Even the most complete application will not get funded if your customers don’t have sufficient commercial credit.
To maximize the chances that your factoring application will be successful, you must plan, prepare, do your homework, and avoid these mistakes. Make sure to have all paperwork in order and submit it when you are ready to move forward. If you have issues relating to items 2 through 6, consult a competent attorney.
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 does not contain legal or financial advice. If you need advice, please consult a competent professional.