Invoice financing programmes, also known as invoice factoring, can provide many of the benefits associated with a line of credit. However, they are much easier to qualify for than conventional financing.
Most invoice finance companies have fairly simple requirements to qualify. The following is a list of the main requirements to qualify for invoice finance.
Note: To learn more about invoice finance, read this article.
1) Must have an ACN or ABN
Invoice finance companies can provide financing to businesses only. Consequently, you must have an ACN (Australian Company Number) or an ABN (Australian Business Number).
2) Your company must have business clients
Invoice finance programmes provide financing by allowing you to sell your accounts receivable to a finance company. However, the finance company can buy your invoices only if your clients are businesses.
3) Your client’s business credit must be good
The most important benefit of invoice finance is that it provides financing based on the credit quality of your invoices. The finance company will only finance high-quality invoices that are very likely to be paid on their due date. Invoice finance companies determine the credit quality of your invoices by checking the business credit of your clients.
4) Your profit margins must be above 15% (varies)
Due to its cost, invoice financing works best if your profit margins are reasonably high. For larger companies, profit margins of 15% work well. For smaller companies, a margin of 20% or higher works best.
5) Your invoices must be free of security interests
You can only finance invoices that have not been pledged as collateral (e.g. through a PPSA) to other lenders. Finance companies typically search the PPSR to ensure the invoices are clear of security interests.
6) You must be able to provide basic company information
While the credit of your customers is the most important criteria for a finance company, it is not the only one. Your company must be able to provide some basic information. Some requirements vary by industry, but here is a general list:
- Business ownership and structure information
- Aged receivables report
- ATO portal statement
One last point
Note that each finance company is different and has its own specific requirements. However, this guide should give you a good idea of what you need to have in place to qualify for an invoice financing line.
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