Most businesses turn to invoice factoring to get cash quickly by selling their current receivables. Businesses that want to take advantage of factoring services don’t need to complete a credit check to qualify for the factoring receivables process. Is this because invoice factoring companies will buy invoices from any business regardless of who their clients are? Definitely not. The factoring company instead will vet the business’s invoiced client(s) and run a credit check on them to determine if they are in good standing and have a history of paying their bills on time.
A Client’s Creditworthiness Is Key to Factoring Receivables
If the client passes the verification and credit test, then the accounts receivable factoring process will proceed as desired. The invoice factoring company will pay out the money to the business and then collect on that amount when the customer pays 30-, 60-, or 90-days later. Yet if the credit check does not pan out favorably, the factoring company will notify the business promptly so that it knows the client or potential client is not creditworthy.
The Service Provided by Factoring Companies Is Unique in the Industry
Though on the surface this can seem like a bad thing, as the saying goes, don’t shoot the messenger. The factoring company is actually providing a valuable service to the business by letting them know that their customer’s creditworthiness is not good. If this is a potential customer, this notification can better help the business decide whether or not to actually go ahead and take on this new customer. If the business wants to proceed, it can then require payment upfront.
This credit assessment of a business’s customer or prospect is a unique service provided by those in the factoring accounts receivables sector. Other financial institutions and lenders, such as corporate banks, do not provide this service and leave it up to the business to decide whether or not their customers are in good standing.