Does a business need good credit to be approved for factoring?
No. Unlike many traditional funding sources that require extensive credit histories and collateral to be approved for funding, factoring is mainly concerned with the quality of your invoices. Since the quality of a company’s invoices is entirely separate from the age of the company, new companies with strong customers can qualify for factoring services without difficulty. This means that not only can businesses with unestablished credit get approved for factoring, but even businesses with poor credit.
Ultimately, factoring places a high value on the creditworthiness of your customers. Since a large portion of the risk of collecting an invoice centers on whether your customer is going to pay, and pay in a timely manner, it is vital for a client’s customer to have a good payment history. As such, most factors put a large emphasis on the creditworthiness of your customers. This in large measure frees a company up from the onerous credit requirements banks use in credit decisions and allows them to obtain funding in many situations that would not work in traditional business financing.