There are times when clients are in a big hurry and need funds quickly. They often ask whether an invoice can be factored before they have finished providing the service or before the product is delivered. In other words, they need funding before they invoice the client. Unfortunately, an invoice cannot be factored prior to delivery. By definition, invoice factoring requires an invoice as collateral.
What can’t pre-delivery invoices be financed?
One way to understand this issue is to consider it from the factoring company’s point of view. They are financing your company based on the credit strength of your invoices. But if you don’t have an invoice, because the work is not completed, there is no collateral to finance.
This situation could also be risky from the factor’s perspective because there is the potential for non-delivery. Imagine what would happen if the factor advances money to your business and, for some unexpected reason, your company is unable to deliver the goods/services to your client. The invoice would no longer be valid, which would create complex problems for both companies and could have important repercussions.
One possible solution
If you are faced with this problem, there is one possible solution. You can work with your customer to allow you to invoice in stages. This way, you can invoice for product or work that has been delivered up to a specific point. With this approach, you create an invoice that can usually be factored.
As you can see, this strategy requires your customer to agree to a new billing schedule, which can be difficult if the project has already started. Ideally, you want to try to forecast your cash flow needs and negotiate a payment schedule before the project starts.
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We can provide you with a competitively priced factoring quote. For information, Please call (877) 300 3258.