Common Invoice Factoring Mistakes

Trouble with cash flow is one of the most common reasons why small to medium sized businesses fail. Many business owners are looking for debt-free financing options to help with cash flow, therefore looking beyond the traditional bank loan or line of credit. Invoice factoring is a great solution to cash flow issues. When someone isn’t familiar with the processes involved, they might end up choosing the wrong factor or not being eligible. In this article we’ll go over some common mistakes that people make when applying for invoice factoring, and how to avoid them to make sure your application is as successful as possible.

Providing Inaccurate Information

Be sure to go over the information you provide about your business, revenues and expenses twice before sending in your application. Information you provide about your clients should be accurate as well, considering the factoring company is concerned about the credibility of your clients. Mistakes and inaccurate basic information can lead to poor terms or even rejection of your application.

Not Providing Supporting Documentation

You absolutely must include order confirmations, receipts, and other documentation for your invoices when applying. Not doing so is one of the most common causes for denial. Issues with documentation are common when multiple documents are sent by different means, such as faxing a few documents and mailing a few more. Sending all your documents online at one time is a great way to avoid any mishaps.

Not Including Other Liabilities

Business owners typically aren’t fond of disclosing how much debt they’re in, especially on an application for funding. However, many invoice factoring companies will search public records and other similar databases to verify the information they’re given about debts the company owes like loans and taxes, as well as other factoring agreements. Existing liabilities, even liens, might not be a deal breaker. However, omitting information could cause delays or be the reason you’ll be denied.

Not Reviewing Monthly Terms

Some agreements require a minimum number of invoices each month. If you don’t meet these requirements, you might have higher rates or additional fees. While searching for a factor, be sure to read all terms and pick one that works well with your business’s needs.

Overlooking Hidden Fees

While we’re on the topic of terms and agreements, be sure to read everything before you agree to anything. Some factoring companies will offer low teaser rates, but will also impose application fees, credit check fees, ACH fees, monthly service fees, long-term contracts and minimum fees. All of these extra fees and contracts are often included in fine print, making them easily looked over during the initial application process. Work with a company that provides clear and simple terms.

Misdirected Payments

Misdirecting payment basically means that you’ve factored an invoice, but the client still pays you. This is a type of fraud. The factor you’re working with has purchased the invoice, so when the client pays, the money belongs to the factor. By misdirecting the payment, you get paid twice for one invoice. This will definitely hurt the professional relationship between your business and your factoring company. It might also cause penalties or the factoring company might refuse to continue working with you.

Like you should do with most things, be sure to do your research before seeking out a factor, especially if you’re unfamiliar with how factoring works. When you’re knowledgeable about a service, you’ll see red flags from not-so-reliable companies and avoid getting caught up in a bad situation. To learn more about what we offer here at CoreFund, contact us today!