Possible Problems

One of the pitfalls with factoring and one not readily discussed by factoring agents can occur, and usually will occur at the worst possible time for the business and produce a situation where the invoice in question is simply not funded or funded at a fraction of the face value. The problem is not with the invoice, but with the company to which the invoice was issued. Likewise, this typically happens with factoring accounts that have little activity or are at the beginning of the relationship.

Commercial Line of Credit Small Business Financing

Accounts receivable financing is based primarily on the credit rating of the company being invoiced. This allows for the client business to establish credit in their name without having to meet overly stringent regulation. The situation arises when the company invoiced does not meet the requirements of the factoring agent.

Say for example, you've created a teaming arrangement with an 8(a) company in Anchorage, Alaska. Your headquarters are in Atlanta. Your factoring agent is in Florida. Chances are the factoring agent has never heard of the 8(a) company and has no prior knowledge of their services of reputation. The factoring agent then researches the invoiced company. If he is not satisfied with the information he gets back, perhaps he pulled an incomplete file, there is a good chance that the funding will not happen.

Commercial Line of Credit Small Business Financing

On the flip side of this coin is a company the funding agent does know a good deal about. Unfortunately, everything he knows is negative. The company has recently lost major contracts. The company has a habit of paying late on most invoices. In this case, you will have a great deal of trouble getting any invoice sent to this company funded by the factoring agent.