After you have decided to work with an invoice factoring company, you may be wondering what the next steps will be. How do you get started with your chosen company? What information will the company need from you or your customers to begin the process of invoice factoring? As with any new business relations, there will be some paperwork and due diligence performed in the beginning. However, once this is completed you will be able to reap all the benefits invoice factoring has to offer.
How Do I Get Started?
1. Fill out an application
The process to get started working with your chosen factoring company begins once you fill out their application and provide all the required documentation. This usually includes items such as:
- Social Security number
- Driver’s license
- Articles of Incorporation/Articles of Organization
- Organizational Minutes/Operating Agreement
- Statement of information
- Sample of an invoice
- All documentation needed for billing
These items will allow the factoring company to perform the correct checks on you and your company to ensure that you are who you say you are and you are able to pass the background check needed to factor invoices.
2. Provide five business references
UC Factors specifically requires all new applicants to provide five business references with their application. These references allow us as a factor to confirm that the applicant is a reputable company with a positive standing in their industry.
We use these references to confirm, along with a background check, that the company who is applying to factor will be around fulfill their business responsibilities.
3. Credit and background checks
Once you have supplied the factoring company with a completed application, all necessary documents, and five business references, they will begin to perform background checks.
These checks have two purposes:
- To make sure you and your business are who you say you are
- To make sure there are no pending legal matters related to you or your business
The background checks provide the factoring company with information about criminal records, bankruptcy, liens against the business, and more. These questions are asked in the original application so the background check allows the factor to ensure that the application was filled out truthfully.
Some factoring companies may run personal credit check on all officers or other members of your company before agreeing to take you on as a client. At UC Factors, we don’t run personal credit checks, which is why we ask for business references to qualify. We believe that having five professional business references provides the same, if not more, information on who you are as a business, your reputation, and your ability to fulfill your business responsibilities.
4. Underwriting and contract approval
Once your company has passed the background checks, your application will be sent to underwriting. At this point, your factoring rates will be determined and a contract will be created.
Once you sign and return the contract, you are ready to factor any new invoices that haven’t been sent to customers yet.
What Does the Factor Need from My Customers?
While you are still in the application steps of the process, your customers will not be aware that you are planning on factoring invoices. There is not much your customers will actually have to do until you have factored their first invoice.
However, you as a company still need to provide the factor with the information about the customers whose invoices you are planning on selling. This is because the factor will need to run a credit check on these customers.
This credit check will prove that your customers are creditworthy and will show the factor that they will be able to extend credit to each of your customers.
While it is important that you as a business are reliable and have a good report with your customers, you as a company are technically not the ones who will be paying the invoices. Since the customers are the ones who will be paying the invoices, the factoring company needs to ensure that their credit is solid and they are able to pay.
Is There Anything That Would Prevent Me from Factoring Invoices?
After all the necessary steps have been taken to being factoring your invoices, you typically will be good to begin. There are just a few things that could pop up during this process that would prevent you from factoring your invoices.
- Security risks noted on the IFA watchlist
- Liens against the company
- Customers who do not pass the credit checks
- Inadequate paperwork that doesn’t meet funding requirements
- No proof of purchase
While this list doesn’t cover every reason a company wouldn’t be accepted by a factor, you can still see the majority of reasons you would lose acceptance. If you do not have any of these issues going into the application process, you should be approved to factor your invoices.
The steps for factoring invoices is very straightforward. Once you have filled out the necessary application and provided all required paperwork, the majority of the work is finished for you, the company.
As long as you are a reputable company who can pass a background check and your customers prove to be creditworthy, you will be able to get started factoring invoices as soon as you have provided your factor with a signed contract!
The first step to working with a factoring company is making sure you have chosen one that is the best fit for your business! Learn how to choose the best factor for you here: