How do you start invoice factoring? What documents do factoring companies ask for? What does the process look like?

Starting invoice factoring often involves filling an application and preparing a financial package to ensure a quick and easy process. This financial package varies depending on the type of factoring you’re looking for, the amount of financing requested, and the internal policies of the factoring company.

Freight factoring can have particular nuances in documentation requirements. The information below largely pertains to general invoice factoring.

1. Prepare Your Financial Documents

Factoring companies focus on financial transparency, so you’ll likely need to provide the following:

• Corporate Tax Returns: Recent tax filings to demonstrate your business’ financial history.
• Internal Financials: Detailed statements, including accounts receivable (AR) and other financial reports.
• AR Aging Report: An itemized list of outstanding invoices to show your current cash flow situation.
• Business Formation Documents: Articles of Incorporation, Operating Agreement, partnership agreement, etc.

Other documents that may be required:

• Personal Financial Statement (PFS): A breakdown of the financial standing of the business owners or key stakeholders.
• Personal Identification: A valid identification is often a requirement.
• Contracts: A factor may require you to submit your customer contracts so they can review for potential risks.

Having these documents ready ensures that a factoring company can assess your application quickly and accurately.

2. Submit Your Application

Complete the factoring application, providing information about your business, clients, and monthly invoicing volume. Be as detailed as possible to avoid delays during the review process.

3. Evaluation and Approval

Once submitted, the factoring company reviews your financial package, focusing on the creditworthiness of your customers (who are responsible for paying the invoices). This step typically takes 1-3 business days, but may take longer depending on the complexity of the deal and how quickly you provide the factor with all required documentation.

4. Receive and Review the Proposal

If approved, a factoring company may provide a customized proposal outlining the factoring terms, including advance rates, fees, and payment timelines. Carefully review the agreement and address any questions.

5. Start Factoring

After signing the agreement, you may begin submitting invoices to the factoring company. Once the factoring company verifies the validity of the invoices, you’ll receive an advance of 80-95% of the invoice value.

The approval process varies from company to company, so the above is a general overview. Often, the longest part of the process is gathering documentation. By having your information ready beforehand, you can speed up the process and get funded more quickly.