What To Do If Your Invoice Factoring Application Is Rejected

Having a business application rejected is never fun. We wrote an article offering suggestions on what to do when a business loan application is rejected. Here, however, we address specific things you can do if your factoring application is rejected. Following these steps does not guarantee that the rejection will be overturned or that you’ll be able to get financing, but it should help increase your odds of succeeding.

We cover the most common reasons for application rejections and, if possible, suggest ways to solve the problem.

Is factoring a good match for your company?

The first question to ask is whether factoring financing is a good match for your business financing needs. Factoring solves only one specific problem: cash flow shortages created by customers paying slowly. Here is a typical factoring client profile that should help you determine if factoring is a good fit for you. Obviously, if your application was rejected because factoring is not a good fit for you, speak to a professional who can help you find the right financing.

Did you provide a complete factoring application package?

Many applications are rejected simply because they are incomplete. It’s not unusual for clients to submit applications missing key information, or sometimes a factoring company may request additional information to make a funding determination. An application will be rejected if it is incomplete and if the missing information is not provided in a timely manner. However, this problem can be solved easily by submitting the missing information.

Do your clients have good commercial credit?

The whole premise behind factoring is that you can quickly monetize slow-paying invoices from creditworthy customers. If your customers don’t have good commercial credit, your company won’t qualify for a factoring line, even if everything else in your application is great.

Does your company have any liens created by prior loans, back taxes, or judgements?

For your business to qualify for factoring, your accounts receivable must be free and clear of liens (or any encumbrances) because they are the collateral that the factoring company uses to finance your business. For example, if your company has a business loan, the bank likely has a UCC lien on your invoices. This problem can be fixed if – and only if – your bank subordinates their position on your invoices to the factoring company.

Your invoices may also have a lien if your company has not paid taxes on time or if there is an unsatisfied judgement against your company. The best advice for solving these problems is to consult a competent legal and tax professional to structure a solution.

Do any company officers have negative personal information?

Many factoring companies scrutinize the backgrounds of the individuals who own or manage the client. Past criminal issues, tax issues, and bankruptcies may affect your ability to qualify for factoring. This decision varies by factoring company, but many factors subscribe to the rule that a company is only as good as its managers.

Is your company a good fit for the factoring company?

Sometimes, perfectly good companies get rejected simply because the factoring company is not comfortable with your industry. Many invoice factoring companies have industries that they prefer and industries that they dislike. Some are upfront about their preferences while others are not. It’s in your best interest to ask them upfront if they are comfortable with your industry and if they have worked with your type of company. This problem is very easy to fix: if the factoring company is not comfortable with your industry, look for a factoring company that is.

So your application got rejected – now what?

If your application is rejected, the first step is to determine why it was rejected. Some factoring companies will share this information with you. Each company has its own policy. However, you should be able to determine the cause of the rejection by reviewing the questions we have outlined in this article. The three most common reasons for application rejections are listed below. As you can see, you should be able to easily figure out if any of these causes derailed your factoring application.

  1. Incomplete applications/missing information
  2. Liens (created by owed back taxes, judgements, or business loans)
  3. Negative personal information

Once you determine the cause of the rejection, you can then determine if you can fix the problem. At this stage, you are better off working with a professional, such as a CPA, who can advise you on how to strengthen your application to increase your odds of having it accepted.

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.