What to Expect During the Factoring Application Process

Over 74,000 small businesses across the country apply for invoice factoring each year, according to the latest Small Business Credit Survey. Yet, despite its widespread use, many business leaders are unfamiliar with how the process works until they need fast funding and are filling out an invoice factoring application for the first time. To help prepare you for the road ahead and answer many of the questions you likely have, this guide will walk you through the full invoice factoring application process and timeline, plus provide tips to help you secure your funding faster. 

How to Apply for Invoice Factoring

If your business needs to improve cash flow without taking on debt, invoice factoring is a straightforward solution. The first step in the process is completing an invoice factoring application form, which can typically be done online.

Choose a Factoring Company or Get Matched with One

Factoring companies vary in their industry expertise, fee structures, and customer interaction policies. When comparing your options, consider:

• Industry Experience: Some factors specialize in industries like trucking or staffing, while others work with a broad range of businesses.
• Advance Rates and Fees: Factoring companies typically advance anywhere from 60 to 95 percent of the invoice value upfront, with the rest, minus fees, paid once the customer settles the invoice. 
• Recourse vs. Non-Recourse Factoring: If protecting your business from customer non-payment is a priority, non-recourse factoring may be the better choice, though it often comes with higher fees.
• Customer Interactions: Some factoring companies handle collections directly, which may impact your customer relationships. Others allow you to maintain control over communications.

Finding the right factoring partner can be time-consuming. Invoice Factoring Guide simplifies the process by matching businesses with factoring companies that align with their industry and cash flow needs. Request a free quote to get started.

Complete the Invoice Factoring Application Form

Most factoring companies streamline their application process with online forms. While requirements vary, businesses typically need to provide:

• Basic Business Details: This includes the legal name, structure, and tax ID of the company.
• Contact Information: The name, phone number, and email of the business owner or primary contact.
• Industry Type and Expected Invoice Volume: Factoring companies use this information to assess risk and determine eligibility.
• Customer List: A breakdown of the customers whose invoices will be factored, as their creditworthiness plays a key role in approval.

After submitting the form, the factoring company will assess eligibility and guide you through the next steps.

Typical Qualifications for Invoice Factoring

Invoice factoring provides businesses with quick access to working capital, but not every company qualifies. Unlike traditional financing, approval is based more on your customers’ creditworthiness than your own. Factoring companies evaluate several key areas before approving an application.

Key Invoice Factoring Requirements

Each factoring company sets its own criteria, but most require:

• B2B or B2G Transactions: Factoring is designed for businesses that sell goods or services to other businesses or government agencies on credit terms. Companies that primarily deal with individual consumers typically do not qualify.
• Unpaid Invoices for Completed Work: Factoring companies only purchase invoices for completed deliveries or services. Work-in-progress or future receivables generally do not qualify.
• Creditworthy Customers: Since factoring companies rely on your customers to pay, they assess customer credit history and payment trends before approving invoices.

Financial Documents Needed for the Factoring Application Process

To assess risk and determine eligibility, factoring companies require financial documentation. Common requests include:

• Accounts Receivable Aging Report: A breakdown of outstanding invoices by customer, showing how long each invoice has been unpaid. This helps with assessing AR for factoring approval and understanding payment trends.
• Customer Credit Information: Some factors request customer financials or payment histories to ensure invoices meet AR eligibility for factoring standards.
• Business Formation Documents: A copy of your business license, articles of incorporation, or partnership agreement to verify company legitimacy.
• Bank Statements: Some factoring companies review recent bank activity to confirm financial stability.

Factors for Factoring Approval

Beyond financial documents, factoring companies consider several additional factoring approval factors, including:

• Industry Risk: Some industries, such as construction, have higher invoice disputes and longer payment cycles, which can affect approval.
• Invoice Size and Volume: Factors often set minimum and maximum invoice amounts, with some requiring businesses to factor a minimum dollar amount each month.
• Legal and Tax Standing: A business with active liens or unresolved tax issues may face approval delays or require additional agreements with the factor

Factoring Funding Timeline and Costs

One of the biggest advantages of invoice factoring is speed. Unlike bank loans, which can take weeks or months for approval, factoring companies offer much faster access to working capital. The exact factoring application timeline depends on the company, your industry, and how quickly you provide the necessary documents.

How Long for Factoring Approval?

Many factoring companies offer same-day approval, especially for businesses with organized financials and creditworthy customers. However, approval timelines can vary:

• Same-Day Approval: Some factoring companies process applications within 24 hours if all required documents are submitted upfront.
• One to Three Business Days: Most companies complete due diligence and approve new accounts within a few days. Delays can occur if customer credit checks take longer or if additional paperwork is required.
• One to Two Weeks: For industries with complex invoicing structures, such as construction or government contracting, approval may take longer due to lien searches, contract reviews, or extended credit evaluations.

When Factoring Funding is Received

After approval, factoring companies disburse funds based on their processing times and payment structures:

• Same-Day Funding: Some factors provide same-day advances for submitted invoices, especially when using ACH or wire transfers.
• Next-Day or 48-Hour Funding: Standard funding timelines range from one to two business days after invoice verification.
• Longer Payment Cycles: If a factor requires additional invoice verification or manual approvals, funding may take longer.

Startup Costs to Consider

While many factoring companies will process your application and help you get started at no cost, you may be asked to cover some fees during the application process. This includes:

• Application Fees: While not all factors charge this, some may require a fee to review and approve your application. 
• Credit Check Fees: While some factoring companies absorb the expense of running credit checks on your customers, others charge a fee each time this is done.
• Account Setup Fees: Setting up a factoring account involves administrative work to ensure smooth funding, and some factoring companies charge a small fee for this service. 
• Other Fees: Every factoring company is different. Always ask what fees might come into play. Note that fees shouldn’t necessarily be taken as a deal-breaker. Some factoring companies that waive these fees may adjust their rates or structure costs differently. Evaluating the full cost structure helps ensure the best financial fit for your business. 

How to Prep for Your Invoice Factoring Application

A smooth factoring process starts with preparation. The more organized your business is before applying, the faster you can secure approval and funding. Having the right factoring documents ready can significantly reduce delays.

Gathering Invoice Factoring Documentation

Factoring companies require several key documents to assess eligibility and process your application efficiently. Preparing these in advance helps streamline approval:

• Accounts Receivable Aging Report: A breakdown of outstanding invoices categorized by age and customer. Factoring companies use this to evaluate payment trends.
• Customer List with Contact Details: A record of customers whose invoices you plan to factor, including their credit history if available.
• Business Formation Documents: Articles of incorporation, partnership agreements, or business licenses confirming your company’s legal structure.
• Tax Identification Number and EIN: Verification of your business’s tax status and employer identification number.
• Bank Statements: Recent bank records showing financial activity and cash flow.
• Invoice Samples: Copies of typical invoices, ensuring they meet the factoring company’s requirements.

Review Your Accounts Receivable Process

Before applying, evaluate how your company handles invoicing and collections. Factoring companies prefer businesses with clear payment terms and customers who consistently pay on time. Strengthening your internal processes can improve approval odds and secure better factoring terms.

• Ensure Invoices Are Accurate: Double-check invoice details, including payment terms and due dates.
• Resolve Disputed Invoices: Unresolved disputes can cause delays or disqualify invoices from factoring.
• Standardize Payment Terms: Factoring companies typically work with net 30, net 45, or net 60 terms.

By preparing the right invoice factoring documentation and optimizing accounts receivable processes, your business can move through the approval process quickly and maximize the benefits of factoring.

Steps Involved in the Invoice Factoring Application Process

Now that we’ve covered the basics and prep work, let’s take a look at what happens as your factoring application is submitted, reviewed, and approved. 

1. Initial Inquiry and Prequalification

The initial inquiry and prequalification stage helps determine whether your business meets a factoring company’s basic criteria before moving forward with a full application. This step is typically quick, often taking just a few minutes to complete.

What Happens During Prequalification

At this stage, the factoring company gathers high-level details about your business to assess whether factoring is a good fit. This may include:

• Industry Type: Some factors specialize in industries like trucking, staffing, or manufacturing, while others work across multiple sectors.
• Customer Creditworthiness: Since factoring approval depends more on your customers than your business, the factor may ask about your typical clients.
• Invoice Volume and Terms: Factors want to know how much you plan to factor and whether your invoices align with common net 30, net 45, or net 60 terms.

How Long Prequalification Takes

Many factoring companies offer instant or same-day prequalification. Others may take up to a business day, depending on the level of review involved.

If your business meets the factoring company’s initial criteria, you’ll move on to the formal application process, which involves submitting financial documents and customer details.

2. Application Submission

Once your business passes prequalification, the next step is submitting a formal application. This is where you provide detailed information about your company, customers, and invoices to begin the approval process.

What the Factoring Application Includes

While each factoring company has its own requirements, most applications ask for:

• Business Information: Legal name, structure (LLC, corporation, etc.), tax identification number, and contact details.
• Invoice Volume and Frequency: The average dollar amount and number of invoices you plan to factor each month.
• Customer List: Details on the customers whose invoices will be factored, since their creditworthiness impacts approval.
• Payment Terms: The standard net terms you offer customers (e.g., net 30, net 60).
• Financial and Legal Standing: Some factors may ask about liens, outstanding debts, or legal disputes that could impact approval.

How to Submit the Application

Most factoring companies provide an online invoice factoring application form that allows businesses to apply electronically. Others may offer PDF or paper-based applications, though this is less common.

How Long the Application Process Takes

The actual application only takes a few minutes to complete, assuming your business details are readily available. However, approval depends on how quickly you provide supporting documentation.

3. Document Collection

After you submit your application, the factoring company will request specific financial documents to verify your eligibility. Preparing these documents in advance can speed up the approval process.

Why Documents Matter

Factoring companies use these records to:

• Verify Invoice Legitimacy: Factoring companies confirm that the invoices submitted are for completed work or delivered goods.
• Assess Customer Creditworthiness: Since approval is based on your customers’ ability to pay, factors evaluate their payment history and financial stability.
• Confirm Business Standing: Legal and financial documents help ensure that your company meets the factoring company’s requirements.

Common Requests

Most factors ask for an accounts receivable aging report, customer details, and business formation documents. Additional paperwork may be required depending on your industry or financial standing.

How Long Document Collection Takes

If your documents are ready, this step can be completed in a day or two. However, missing or incomplete paperwork can delay approval, so it’s best to stay organized.

4. Customer Credit Review

Factoring companies rely on your customers, not your business, for repayment. Because of this, they conduct a thorough review to determine customer creditworthiness for factoring before approving invoices for funding.

How Factoring Companies Evaluate Accounts Receivable for Eligibility

Factoring companies assess your accounts receivable to ensure they meet specific criteria. Key considerations include:

• Payment History: Factors look for customers with a strong record of paying invoices on time.
• Credit Ratings: Some factoring companies pull business credit reports to gauge risk.
• Invoice Terms: Most factors prefer invoices with net 30, net 45, or net 60 terms. Longer payment cycles may require additional review.
• Dispute History: Frequent invoice disputes or chargebacks can affect factoring and customer credit evaluation and may result in lower approval rates.

How Long Customer Credit Review Takes

The credit review process is typically completed within 24 to 48 hours. However, if a factoring company encounters difficulty obtaining credit information on a customer, this step may take longer.

5. Factoring Agreement Review and Negotiation

Once your business and customers pass the credit evaluation, the factoring company will send an invoice factoring contract outlining the terms of your agreement. This is a crucial step, as it defines how factoring will work for your business, including funding terms, fees, and obligations.

Key Invoice Factoring Terms to Review

Before signing, it’s important to focus on reviewing factoring terms to ensure they align with your business needs. Pay close attention to:

• Advance Rate: The percentage of the invoice value you receive upfront, typically 80 to 95 percent.
• Reserve Release: The remaining balance, minus fees, will be paid to you once the customer settles the invoice.
• Contract Length: Some factoring agreements require long-term commitments, while others operate on a month-to-month basis.
• Recourse vs. Non-Recourse Factoring: In a recourse agreement, you are responsible for unpaid invoices. Non-recourse factoring shifts that risk to the factoring company, though it usually comes with higher fees.

Contract Review for Factoring: Fees to Watch For

Factoring costs go beyond the basic factoring fee. During your contract review for factoring, be sure to examine the following:

• Factoring Agreement Fees: The standard cost of factoring, typically 1 to 5 percent of the invoice value.
• Additional Charges: Some factors charge credit check fees, wire transfer fees, or invoice verification fees.
• Monthly Minimums: Some contracts require you to factor a minimum dollar amount each month, which could lead to extra costs if not met.
• Termination Fees: If you want flexibility, ensure your contract does not include high penalties for early termination.

Negotiating Your Factoring Agreement

Factoring terms are not generally set in stone. If the fees or requirements seem too restrictive, ask whether adjustments can be made. Some factoring companies offer customized agreements based on invoice volume, business history, or industry risk.

6. Verification of Invoices

Before releasing funds, the factoring company performs invoice verification to confirm that the invoices submitted for factoring are valid and undisputed. This step protects both your business and the factor from potential fraud, duplicate invoices, or non-payment risks.

How Factoring Companies Verify Invoices

The verification process varies by factoring company but typically includes:

• Customer Confirmation: The factor may contact your customers directly to confirm that the goods or services were delivered and that the invoice amount is correct.
• Invoice Matching: Factoring companies compare submitted invoices against contracts, purchase orders, or work completion documents to ensure accuracy.
• Outstanding Balance Checks: If an invoice has been partially paid or disputed, it may be ineligible for factoring.

How Long Invoice Verification Takes

For most businesses, verification is completed within 24 to 48 hours. However, if customers are slow to respond or additional documentation is required, this step may take longer.

7. Approval and Account Setup

Once your invoices are verified, the factoring company finalizes your approval and sets up your account. At this stage, you gain access to your factoring portal, and the company assigns a representative to manage your account.

What Happens During Account Setup

• Factoring Portal Access: Many factoring companies provide an online portal where you can submit invoices, track payments, and view reports.
• Bank Account Verification: The factor confirms your bank details to ensure smooth fund transfers.
• Ongoing Customer Credit Monitoring: The factoring company may continue monitoring customer creditworthiness to manage risk.
• Dedicated Account Manager: Some companies assign a representative to answer questions and assist with invoice submissions.

How Long Account Setup Takes

Account setup is typically completed within one business day after invoice verification. However, delays can occur if banking details require additional confirmation.

8. First Funding Disbursement

With your account set up, the final step in the invoice factoring process is receiving your first funding disbursement. This is when the factoring company advances a percentage of your invoice value, providing immediate working capital.

How First Funding Works

• Advance Rate: Most factoring companies advance 80 to 95 percent of the invoice value upfront.
• Reserve Amount: The remaining balance is held in reserve and released once the customer pays, minus any fees.
• Funding Speed: Depending on the factoring company, funds may be deposited same-day, next-day, or within 48 hours.

How to Receive Funding Faster

To ensure a smooth invoice factoring process, businesses can:

• Submit Invoices Early in the Day: This will allow you to meet same-day or next-day funding cutoffs.
• Go Digital: Use ACH or wire transfers for faster access to funds.
• Be Clear: Keep customer communication clear to avoid invoice disputes that could delay funding.

How to Avoid Hiccups in the Factoring Application Process

Delays and approval issues can often be avoided with proper preparation. Factoring companies work quickly, but missing documents, credit issues, or invoice discrepancies can slow things down.

Common Challenges and How to Prevent Them

• Incomplete Documentation: Missing or incorrect factoring documents can delay approval. Ensure all required paperwork is ready before applying.
• Customer Credit Issues: Since factoring approval depends on your customers, businesses with clients who have poor credit or slow payment histories may experience funding challenges. Checking customer creditworthiness in advance can help.
• Invoice Disputes: Factoring companies do not typically fund invoices under dispute. Resolving discrepancies before submission ensures a smoother process.
• Unclear Payment Terms: Invoices with vague or inconsistent payment terms may require clarification, delaying funding. Clearly defined payment terms improve approval chances.

What to Do if There’s a Delay

If your factoring application is taking longer than expected, it may help to:

• Follow Up: Connect with your factor to confirm whether additional documentation is needed.
• Exchange: Provide alternative invoices if certain ones do not meet eligibility requirements.
• Inquire: Ask about expedited options if immediate funding is necessary.

By anticipating potential challenges and preparing in advance, businesses can minimize delays and keep the factoring process on track.

Managing the Ongoing Factoring Process

Once factoring is in place, businesses must manage the day-to-day aspects of their arrangement. Understanding how ongoing factoring works ensures that you maximize cash flow while maintaining a strong relationship with your factoring company.

Steps in Invoice Factoring

The steps in invoice factoring remain consistent once your account is active:

• Submit New Invoices: Send eligible invoices to the factor for funding.
• Receive Your Advance: The factoring company deposits the agreed-upon advance into your bank account.
• Track Customer Payments: Your customers pay the factoring company directly based on the original invoice terms.
• Receive the Reserve Balance: Once the customer pays, the remaining funds minus factoring fees are deposited into your account.

Tracking Factoring Payments

Staying on top of cash flow is essential when factoring. Many companies offer online portals for tracking factoring payments, allowing businesses to:

• Monitor Funded Invoices: Check which invoices have been processed and advanced.
• Review Outstanding Customer Payments: Track unpaid invoices and their due dates.
• Track Reserve Balance Releases: See when the remaining funds, minus fees, will be deposited.

Staying in Touch with Your Factor

Good communication with your factoring company can prevent misunderstandings and delays. Staying in touch with your factor ensures that you:

• Stay Updated on Credit Policy Changes: Factoring companies may adjust credit limits or customer eligibility requirements over time.
• Resolve Funding Issues Quickly: Prompt communication helps address any delays or questions related to invoice processing.
• Get Guidance on Additional Factoring Needs: Your factor can advise on factoring more invoices or adjusting your agreement as your business grows.

Get a Jumpstart on Your Invoice Factoring Application

The faster you start the application process, the sooner your business can unlock reliable cash flow through factoring. Whether you need quick approval or want guidance on choosing the right factoring company, Invoice Factoring Guide can help. Instead of sorting through countless options, get matched with a factoring company that fits your industry and funding needs. Take the first step toward a seamless factoring experience and request a free quote today.

Invoice Factoring Application FAQs