There are definetly some things about financing receivables that aren't initially apparent. This series of articles will try and answer some of the most common questions with real world answers.
In part 1 of this series we will be discussing the ability to finance receivables that have already been created. When we sign a new client I often get the question, "Will I be able to finance the receivables that I have already created?". The truth is that it depends on a few different things.
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How old is the invoice?
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How much is the invoice?
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Will the finance company be able to receive an acknowledgment from the customer that they can be paid directly?
The reason why finance companies are always interested in the age of the invoice is that finance companies don't want to lend against an invoice that may be a problem. If the invoice is old there is a chance that the customer is not paying because there is a problem with the good or service provided, or the customer is having cash flow issues. A good rule of thumb is the more "fresh" the invoice is the more chance you will have to finance the invoice.
In a new relationship, finance companies are always a little more cautious then they are after they have had experience with the receivables in question. If you are a new client financing receivables, the financing company may be worried if you are asking them to finance receivables that are already billed and represent a large portion of the financing facility. It is human nature to be worried about the unknown and factoring invoices is no different. The smaller the invoice amount the more likely they may be to finance it.
At our firm, one of the things that is paramount to us is our ability to receive an acknowledgment from our factoring client's customer that they will pay us directly. If you have already billed your customer it may be more difficult to get them to acknowledge the new factor and change the bill to address in their system.
When are considering asking your new finance company to finance old receivables keep in mind that you should only ask if it is absolutely necessary. The fewer favors you ask, the better the chance is when you truley need something they will go out of their way to help.
One more thing.....if all else fails tell them you are willing to pay a little more if they finance the older receivables. It is all about risk vs reward. If you are going to ask them to take what they believe is more risk then you should be willing to pay for it.
For more information about our online invoice factoring company or financing accounts receivable, check our our FAQ or click the link below.
