Factoring invoices is a transaction in which a company sells its accounts receivable, or invoices, to a third party profitable monetary company, also known as the factoring company. Factoring is done when a business needs to access cash quickly so that it can meet its financial obligations and needs
However with all systems in place to govern the factoring of invoices companies and transactions the below problems are experienced in the process. Having knowledge about these issues will help the factoring company to plan and prepare accordingly in case such a problem occurs
- The seller is not creditworthy
When a business is trying to factor its invoice, and the financial credibility of such a customer is being doubted and questioned, then no company will undertake the service. The credit worthiness of a business is the foundation of any factoring transaction
- The invoice exceeds the credit period
A factoring company always provides a credit line to a company that is contracting them for the service. In some case, the invoice in question exceeds the credit period assigned to that particular seller, and this always poses a problem in the factoring transaction. In such circumstances, the seller has to negotiate the credit line to be increased by the “factor” so that they can benefit from the service.
- The invoice cannot be verified
As a norm most factoring companies will authenticate the validity of the invoice provided so that they can verify that the work or service has been completed agreeably. In the case of a product, to confirm that it has been delivered as per the purchase order. This process ensures that the client is happy and satisfied for they are the ones who verify the invoice in question. The seller needs to create a good relationship with their customers so that they can cooperate in case such a situation arises.
- The client’s refusal to submit payment to the factoring company
Some factoring companies require the customer to provide the payment to them and not the sender as per the “notice of assignment” letter that is always sent to them. Some customers, however, might completely refuse to send their payment as required and will result in the factoring company preventing a business from accessing the financing of the invoices associated with that particular customer. As a matter of fact, factoring of invoices service is only provided for completes services. This impact’s contrary to the seller of the invoice business.