Why are Net-90 Invoices Not Factorable?

One of the ways that larger companies coped with the 2008 – 2009 recession was to extend invoice payment terms. Companies that used to pay in Net-30 days started paying in Net-40 or even in Net-60 days. Some companies stretched this practice and started paying in Net-90 days or beyond.

Three problems with net-90 invoices

This trend made it harder to factor invoices — harder for factoring clients and harder for factoring companies — for two reasons. The first reason is cost. The cost of factoring is based, partly, on how long the invoice remains unpaid. The longer it remains unpaid, the higher the cost.

The second reason is that factoring companies consider invoices that take longer to pay to be riskier than those that pay quickly. More importantly, the institutions that fund factoring companies often view slow-paying invoice collateral as risky, and many have covenants that prohibit their factors from financing these invoices. And lastly, most credit insurance companies (who insure invoices for factoring companies) do not usually insure Net-90 and beyond invoices. Consequently, invoices that take longer than 90 days to be paid can’t be financed.

Is your customer financially healthy?

Here is another way to look at this situation. Most customers insist on Net-30 payment terms because it helps their cash flow: they get to use your service/product for a month before actually paying for it.

However, an increase in how long they take to pay invoices, especially past Net-75 or Net-90 terms, may also indicate that they are having cash flow problems.

A factoring company may wonder if they need that long to pay because they can’t afford to pay quickly. Although there are exceptions, invoice factoring companies have this concern because they want to finance invoices only from creditworthy customers.

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We are a leading factoring company and can provide you with a competitive factoring quote with high advances and low rates. For more information, please call (877) 300 3258.