Crumpled paper in a trash can

Cash-flow is one of the most often cited reasons that small- and medium-sized businesses fail. Although bank loans and business credit cards can bridge the gaps created by long invoice repayment terms and outstanding payments, many business owners are looking for debt-free options that don’t take away from the bottom line. Invoice factoring can be a viable solution to a company’s funding woes, but it’s not without its own caveats. Avoiding these crucial mistakes is key for a successful invoice factoring application.

1. Providing Inaccurate Information

Double-check the information you provide about the type of business you run, your revenues and expenses, and information about your customers to ensure that your application is comprehensive and accurate. Mistakes, especially for financial figures, can lead to unfavorable terms or even outright rejection of your application.

2. Not Providing Supporting Documentation

Failing to include order confirmations, receipts, and other supporting documentation for your invoices is one of the most common reasons for denial. The issue most often arises when multiple documents have to be sent by email, fax, and mail, increasing the likelihood of misplaced or forgotten paperwork. Completing the process completely online, including exporting data directly from QuickBooks and other financial software, can eliminate this risk and speed up the application process.

3. Not Including Other Liabilities

Business owners may be wary of disclosing the extent of their indebtedness, fearing rejection of their funding application. However, invoice factoring companies search public records and other databases to verify information about debts the company owes such as loans and taxes, as well as other invoice factoring agreements. While existing liabilities, and even liens, may not be a hindrance, omitted items could cause delays or be the reason your application is denied.

4. Not Reviewing Monthly Minimums

Some invoice factoring agreements require a minimum volume of invoices each month. This can mean incurring minimum fees and higher costs than the advertised rate if you don’t hit the minimum requirements. To be in control of your financing costs, make sure you work with a company that doesn’t require monthly minimums.

5. Overlooking Hidden Fees

Many factoring companies offer low teaser rates, increasing their profits by imposing application fees, credit check fees, ACH fees, monthly service fees, long-term contracts, and monthly minimum fees. Descriptions of these fees are often buried in small print, making them easy to miss during the application process. Don’t fall for teaser rates or a bait and switch sales tactic. Work with a factoring company that gives you clear and simple terms.

6. Factoring Invoices for Undelivered Services

To ensure payment, factoring companies only purchase invoices for products or services that have been completed and/or delivered services. The company verifies each invoice before releasing funds, and you cannot receive an advance on work that has yet to be completed or delivered. You must make sure you only submit invoices for work that is truly complete. Sometimes, companies think they can factor long-term contracts. A contract is not an invoice, it is a commitment to future work. For recurring or subscription billing, you cannot factor a purchase order for work that is billed a month in advance, unless it is a retainer that will be paid regardless of whether work is done or not. You could, however, factor an invoice for work that was completed in the previous month.

7. Misdirected Payments

Misdirecting payment means getting paid directly on an invoice that has already been factored. This is a form of fraud. The factor has purchased the invoice, so by misdirecting the payment, you are getting paid twice for the same invoice. This will not only hurt your relationship with your factoring company, but it might also trigger penalties, and lead the factoring company to terminate the relationship.

Considering the options? Read about choosing an invoice factoring partner.


This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.