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:
- Factoring basics
- Why are invoices verified?
- How are invoices verified?
- What happens if there is a problem?
- 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. Factoring provides a company with access to funds without waiting 30 to 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 structure allows them to offer their services to small companies and deploy funds quickly. However, factoring companies must 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. A factor’s main objective is to verify the invoice as quickly and efficiently as possible. 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 timecards)
Some clients require customers to sign an acceptance document when their services/products are delivered. Other industries, such as staffing and consulting, use timecards. 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.
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. A phone call 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?
Sometimes the factor is unable to verify an invoice. This situation could occur if your customer has a concern with your product or service. Factoring companies always try to handle these issues professionally. The factor usually tells your customer that you will be notified of the issue immediately. This lets you handle the situation quickly and ensure your customer is satisfied.
5. Managing customer expectations
Invoice verifications are a key component of a factoring transaction. Every factoring company performs verifications 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 process allows you to offer better service to them.
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