One advantage of factoring over other options is that many finance companies can get you funding quickly, usually within days. However, several things can delay the transaction. This article explains the factor’s onboarding process, potential transaction challenges, and how to streamline your funding process. We cover:
- Overview of the process
- Setting up the account
- Getting your first funding
- Ongoing funding transactions
- Tips to speed up the process
- Common problems that delay funding
1. Overview of the process
The onboarding process to set up and fund a factoring transaction varies by factoring company, client, and transaction. It can often be done in a couple of days if the client is well-prepared and everything goes smoothly. However, some transactions can take longer. The average transaction takes four to five days to get to the first funding. Subsequent (ongoing) invoices can usually be financed in a day or two. We have divided the process into three steps:
- Account setup
- Initial funding
- Ongoing (subsequent) funding
For more information, read “How Does Invoice Factoring Work?”
2. Setting up your account
The factoring company must set up an account for you before they start financing your invoices. The onboarding setup is done once at the start of the relationship with the factoring company.
This process can be executed quickly if the finance company has the necessary information and if due diligence does not uncover major problems. This process usually includes:
- Examining the information you submitted
- Signing contracts
- Running UCC searches
- Performing background searches
- Setting up your company in the system
3. Getting your first funding
Once your account is in place, the factoring company sets up the first funding. The first funding handles your initial batch of invoices. It can appear complex at first since you are learning the process while the factoring company goes through the steps quickly. However, your first funding is relatively simple. The finance company must complete the following steps:
a) Examine your customer’s credit
The factor will examine your customer’s commercial credit to ensure it meets the requirements. This review can be done quickly through a credit bureau’s online portal. Many factors use Dun and Bradstreet and Ansonia, though there are other providers. If your customer meets the criteria, the factoring company moves to the following steps.
b) Notice of assignments
Every customer you want to factor gets a Notice of Assignment (NOA) at the start of the relationship. Every factor uses the NOA to advise your customer that a third party will manage your invoices. It provides new payment information and advises your customers to call your company for any service questions. While most NOAs are similar, every factoring company uses its own version. Factoring companies are unable to finance invoices until the customer acknowledges the NOA. Once your customer acknowledges the NOA, the finance company moves on to the next step.
c) Invoice verification
The finance company must verify your invoices before funding. This process helps determine that the invoices are open and have no errors. The preferred verification method is through your customer’s vendor portal. Alternatively, invoices can be verified via email or phone call to the Accounts Payable department.
4. Subsequent ongoing funding transactions
Subsequent funding transactions for a customer you have factored before are usually straightforward. The factoring company should be able to fund them shortly after verifying the invoices. In most cases, invoices can be funded in as little as a day if your customer has a vendor portal and everything checks out.
You can always add new customers to your funding schedule. The process for adding new customers is the same as the process for first funding. The factor examines your customer’s commercial credit to ensure they meet the credit criteria. Then, they send them a Notice of Assignment and verify the invoices.
5. Tips to speed things up
There are two things you can do to help speed up the application and funding process.
a) Get all the information to the factor
The most common reason for a funding delay is an incomplete application. You can speed up your transaction simply by collecting all the needed information beforehand and submitting it to the factoring company as a single package. Most factoring companies require the following:
- Application
- Accounts receivable aging report
- IRS 941 forms
- List of customers
- Any additional tax documents
- Corporate bank statement
Each factoring company is different; some may ask for more or less information. Lastly, you may want to consider providing the finance company with a transaction summary. It is not required nor expected. However, our experience shows that a well-crafted summary can help move the transaction faster through underwriting.
b) Talk to your customers
Your customers play a role in ensuring a smooth transaction. Consider talking with them to explain how factoring works and how it will enable you to provide them with better services. This step often speeds up the Notice of Assignment and invoice verification process. Discuss this process with your factoring company and develop a communication strategy to suit your situation.
6. Common problems that delay funding
The following four common problems can delay your factoring transaction:
a) Incomplete applications
The most common reason for a delay in funding is an incomplete application. Usually, the client submits some information but misses essential details. The factoring company won’t be able to proceed until they get the needed information.
Fortunately, this problem is the easiest to avoid since it is entirely within your control. Follow the factor’s instructions and contact them after submitting the application to ensure they have everything they need.
b) Application mistakes and problems
Several application mistakes and problems can delay or even derail your financing application. Most of these can be easily avoided and include:
- Illegible information
- Inaccurate details
- Misleading information
- Leaving parts of the application blank
- Withholding key information
c) Delayed Notices of Assignment
A factoring company won’t be able to finance your invoices until your customers have acknowledged the Notice of Assignment. In most cases, this won’t be a problem since factoring is a common form of financing, and most companies are familiar with it. However, some customers may take time to review the NOA form. This delay can affect how quickly you get funds.
Your best strategy is to work with your factoring company to plan the most effective way of notifying your customers. Planning this step ahead of time helps ensure a smoother process.
d) Verification problems
Transactions can also be delayed if there are problems with the invoice verification process. Invoice verifications can be delayed if your customer does not have a vendor portal and the factor needs to contact a representative in their accounts payable department. Additionally, verifying invoices can be delayed if they:
- Are inaccurate
- Are missing backup documentation
- Have not been received by your customer
- Have disputes
- Have not been fulfilled
Want more information?
We can provide you with a competitive factoring quote – high advances at low rates. For information, call us toll-free at (877) 300 3258.