Invoice Discounting - Ineligibles Part 1

Posted by matthew begley on Mon, Jun 06, 2011

invoice discounting, factoring invoices, invoice factoringI took this picture of a skull, because if you work with an invoice discounting company or asset-based lender, and they deem a lot of your invoices unacceptable, it could mean death for funds running through your business.

ALSO, it just seems cool.... 


In this series, we discuss various categories of "ineligible" and strategies for keeping your bills with your factoring company eligible.

The first thing we should discuss are the most common categories of eligibility, and why the invoice discount companis and asset based lenders deem invoices ineligible.

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  • Accounts 90 days from billing date or 60 past the invoice due date.  If the bill has gone unpaid for two months, there is probably a "story" behind, and a conservative lender will deem it ineligible.
  • Cross-Aging: It's a category that is primarily used by asset-based lenders. It's a relatively simple formula applied to your customers total debt. Consider an example of what happens with 25% Cross-aging. lets assume that your company has $100,000 in bills due from one customer. If 30% of the total amount of that customer, or $ 30,000, goes beyond 60 arrears then the lender will make all the bills due from that customer ineligible. Lender takes a conservative approach, "if more than 25% of total accounts payable by the client is not eligible, I do not want my clients to borrow on that customer."
  • Accounts abroad: In general, factoring companies and asset-based lenders will not finance bills where the customer is out of the country. It has become a bigger problem as the speed of international trade increased with advances in technology and the Internet. Thinking as the lender...it will be difficult to collect these accounts (at worst) because they do not understand the laws of foreign country and there may be a problem of language, among others issues.
  • Company accounts related to the client: I can not think of any banks that would be willing to lend against invoices due to the the borrower, which is the common property of the borrower. There are many things that are dangerous to the creditor, but the biggest issue is fraud.
  • Contra Accounts: This problem can occur if you sell and buy from the same company. The risk to the lender is that the company could arbitrarily decide to not pay the bills they owe by wiping them out against the money owed to them.
  • Bills from product samples: lenders can not get past the simple fact that most bills are not paid for samples.
  • Accounts that are the product of long-term contracts: Remember how I said before your lender does not know your customer as you do? This is an excellent example. Lenders are not able to spend time analyzing and monitoring their accounts at this type of detail, and can not have the experience in your industry to feel comfortable when bills are come from long contracts.

In our next article we will discuss some strategies to help you keep your eligible accounts.

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Tags: Invoice Discounting