Invoice factoring application: the questionnaire and documents to have ready

What an invoice factoring application is for

Invoice factoring is not a loan. A factor buys unpaid B2B invoices, or advances against them, so the cash sitting in those invoices can move now instead of on your customer's clock. The factor then collects from your customer on the terms in the agreement. Because collection runs through your customer, your customer's credit matters as much as yours.

That is why a factoring application looks different from a loan application. A loan application is mostly about your business: how long it has been operating, its revenue, and its credit. A factoring questionnaire asks about your business too, but it spends just as much time on the businesses that owe you money, the invoices themselves, and whether anyone else already has a claim on those receivables.

Every factor writes its own form. The sections below are the ones providers commonly include.

The invoice factoring questionnaire, section by section

About your business

Expect the basics first: the legal name of the business, how it is set up (corporation, LLC, partnership, or sole owner), the business address, what you sell, and who owns the company. Most forms ask how long the business has been operating. Some factors set a time-in-business requirement and some do not, so there is no single answer to how long you need to be open. Some providers also ask which accounting software you use, because a few prefer to work from it directly.

About your customers

This is the section owners tend to underestimate. The factor is going to look to your customers for payment, so it wants to know who they are, how many you invoice, and how they usually pay. Expect questions such as:

• Who are the customers whose invoices you want to factor?
• Are they other businesses or government agencies, rather than consumers?
• How concentrated are your receivables? One large account, a few large accounts, or many smaller ones?
• How long have you worked with each one, and how do they usually pay?

During underwriting, factors commonly evaluate the credit quality of your customers. Some prefer to see either several large accounts or a lot of smaller ones, because heavy reliance on one customer puts more of the file on that customer's payment habits.

About your invoices

Next come questions about the paper itself: your typical invoice size, the payment terms you offer (for example, net 30 or net 60), and roughly how many invoices you issue in a month. Many factors look for a certain volume of invoices, either a number or a total value. Expect to be asked whether the work is complete or the goods delivered when you invoice, since factoring is built around invoices for work already done.

Existing financing

Most questionnaires ask whether any lender already has a lien on your receivables, and whether the business has other loans or advances outstanding. Factors generally want the invoices they purchase to be free of other legal claims, which means they should not already be pledged as collateral for another loan. An existing claim on receivables does not always end the conversation, but it can affect the file, so list it up front. How a specific lien is handled is a legal and contractual question; read the agreement and ask the factor directly. Some forms also ask about past bankruptcies, loan defaults, or tax liens.

What you want

Finally, the form asks what you are looking for: which customers or invoices you want to factor, roughly how much, and how often. Some factors work invoice by invoice, sometimes called spot factoring, while others prefer an ongoing arrangement or a minimum volume.

Documents to have ready (checklist)

Each factor sets its own list. These are the documents providers commonly request, drawn from published industry guides. Have what you can on hand before you start.

On the Keystone side, the live invoice factoring page lists an accounts receivable aging and sample invoices as what is needed to start, and notes that who your customers are matters. The rest of what a lender asks for depends on the request and the lender reviewing it. You can start the application first and add documents later. See what to have ready.

Why factors care about your customers' credit

When a factor buys an invoice or advances against it, it is counting on your customer to pay. That makes your customer's payment history the center of the review. A business with average credit and a customer base of reliable, established payers can be a stronger factoring file than the reverse.

That is why factors ask for customer names and payment patterns before they say much about terms. Your personal credit can help, but creditworthy customers matter more. Your own credit is part of the picture, not the whole picture.

Terms you will see on the form or the offer

Advance and reserve

Factors typically advance part of the invoice value up front and hold the rest back as a reserve. When your customer pays, the reserve is released to you, minus the factor's fees. The advance amount, the reserve, and when the reserve is released are set by each factor and written into the agreement. Compare them across your options rather than assuming they match.

Recourse vs non-recourse

This answers who carries an invoice your customer does not pay. With recourse factoring, you are generally responsible for that invoice and may have to buy it back. With non-recourse factoring, the factor takes on more of that risk, and it usually charges more for it. The agreement says who carries that. Ask before you sign, because the answer changes what factoring costs you.

Notification

Will my customer know? It depends on the agreement. Some arrangements notify your customer and direct payment to the factor, and some do not. Read that section before you sign.

Fees and minimums

Factoring costs can include more than one fee. Industry guides list servicing fees, renewal fees, money transfer fees, termination fees, and monthly minimums alongside the standard factor fee. Some agreements also set a contract length or a minimum volume. Ask for every fee and minimum in writing, and make sure you understand the specific terms of any company you work with.

What happens after you submit

1. You submit one application. Describe the need in plain terms and add what you have.
2. Keystone packages the file. Keystone reviews it and sends it to factors and lenders that buy this kind of paper.
3. Options appear in your account when they exist. Sometimes more than one, sometimes none. If nothing comes back, we tell you.
4. You compare your options. Look at the advance, the reserve, the fees, recourse, and notification side by side. If one fits, choose it, and still review that lender's agreement before you sign. You are not required to sign.

See how it works for the full process and what to check before you sign before you commit to anything.

When factoring is not the right fit

Factoring is built for B2B companies with unpaid invoices. Businesses that sell directly to consumers usually will not have invoices a factor can use. Other products fit other problems:

• Card-only or consumer sales with no invoices. Factoring does not fit card-only retail with no invoices. Read merchant cash advance, and compare it carefully with MCA vs a loan. If you have seen the term "invoice cash advance," that comparison is covered there too.
• A recurring or uncertain need. A line of credit is a limit you draw, repay, and draw again.
• One amount for operating cash. Working capital is sized to how the business runs, not to specific invoices.
• A short gap with a clear end date. Read a cash gap vs waiting on a bank.

Factoring for a Pennsylvania business? See invoice factoring in Pennsylvania.