Why Do Factoring Companies Verify Invoices?

Factoring companies verify customer invoices as part of the financing process. This article explains why factoring companies verify invoices, how they do it, and how they manage potential issues. We cover:

  1. Factoring basics
  2. Why are invoices verified?
  3. How are invoices verified?
  4. How are problems handled?
  5. Managing customer expectations

1. Factoring basics

Factoring is a form of financing that allows companies to sell their accounts receivable to a finance company. In exchange, the factoring company provides an immediate payment. Companies use invoice factoring because it enables them to offer payment terms to customers. It provides access to funds without waiting 30 – 60 days for payment.

One key difference between factoring and loans is the transaction structure. Most factoring companies don’t lend money. Instead, they buy your accounts receivable. This allows them to offer their services to small companies and deploy funds quickly. However, factoring companies much verify the invoices before purchase. To learn more, read “How does accounts receivable factoring work?

2. Why are invoices verified?

Factoring companies verify invoices to determine if it is accurate and ready for financing. The factor verifies that the:

  • Product or service was delivered
  • Fulfillment met customer expectations
  • Invoice is accurate
  • Invoice is due for payment

3. How are invoices verified

Factoring companies try to minimize the impact that verifications can have on your customers. Their main objective is to verify the invoice in the fastest and most effective way. This process can vary by factoring company, transaction, industry, and customer mix.

There are four ways that invoices can be verified. Consult your factoring company to determine their specific verification methods.

a) Vendor portal

Most large companies use a vendor portal that allows suppliers to check the status of their invoices. Factors prefer to verify invoices through a portal because it’s quick and reliable. It requires no communication with your customers and allows them to finance your advances quickly.

b) Signed acceptances (or time cards)

Some clients require customers to sign an acceptance document when their services/products are delivered. Other industries, such as staffing and consulting, use time cards. In both cases, these documents can be used to verify an invoice. They are almost as effective as a vendor portal. Like a vendor portal, a signed acceptance can be seamless and efficient.

c) Email

Factoring companies can also verify invoices via email. This method is common if your customers don’t provide a vendor portal. The factor may also email the customer if some invoice information needs clarification.

d) Phone call

A factoring company can verify an invoice by calling your customer’s Accounts Payable office. This is an effective way to verify invoices if the first three methods were unsuccessful or if more information is needed.

4. What happens if there is a problem?

There are times were the factor is unable to verify an invoice. For example, this can happen if your customer has a concern with your product or service. Factoring companies always try to handle these issues professionally. The factor will usually tell your customer that you will immediately be notified of the issue. This lets you handle the situation immediately and ensure your customer is satisfied.

5. Managing customer expectations

Invoice verifications are a key component of a factoring transaction. Every factoring company does them without exception. Consider handling this issue proactively by learning the specific details of your factoring company’s verification procedures. Work with your customer to ensure they understand how verifications work, how they help you, and how this allows you to offer better service to them.

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