Sep 29, 2011

How Invoices Can Get You Funding

When a company is looking to fund its growth from outside sources, one particular aspect of their business is a good candidate for collateral –- the invoice.

An invoice is an obligation to pay from an account debtor, meaning, your business has done some work and now the receiver owes you money.

Whenever a company extends credit for work, it in essence becomes a banker. The company is lending their customer money –- usually interest free — for the period of time it takes for the customer to pay off the note.

There are two conditions an invoice must have to be considered a bona fide asset to be used as collateral for a loan:

1. Work completed and accepted

This means the customer can sign off that they are completely satisfied with the job they hired the company to do — and will say so, either verbally or written, depending on the circumstances.

Situations where the work has begun (normally the customer allows the company to go ahead and send in an invoice to get it into the system) will not stand up to a verification process associated with AR financing. The terms of payment must be clear and work must be done to be true collateral.

2. Credit worthy

An invoice to a customer that has little or no credit is not considered an asset and cannot be used as collateral.


Even if the work is done for a government agency, but is being billed through a prime contractor, that contractor is the account debtor and must be considered creditworthy. Too often the prime is just a go between to secure a contract but has no assets for themselves and no credit history. This creates a problem when considering invoices to that prime as collateral for a loan.

The lesson here is, act like a banker and make sure your loans (invoices) get paid on time and be sure you are extending credit to customers who can qualify for it.

About the author
How Invoices Can Get You FundingGary Honig has been active with the factoring industry since the early 1990’s where he began as a business development officer for the existing Creative Capital Associates. In March 1997 he spearheaded a takeover of the company and reformed it as a Maryland corporation. Mr. Honig has been at the helm since and oversees all aspects of running CCA which still provides commercial invoice factoring nationwide. He is a participating member of the International Factoring Association (IFA) which is the long standing factoring industry association. He is routinely called upon as an expert with thorough knowledge of the receivables factoring industry.
He can be reached at [email protected] and on Twitter @garyhonig.

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  1. I’ve heard of factoring and I know moreless how it works. I’d like to know mores about it and if it is like the note business.



    • Factoring is a great leg up for a small business – IF you are working with big corporations with strong established credit, and IF they actually pay when they say they will! I ran my business with a factoring company for over 10 years – then they were purchased by another group, who raised the minimum annual invoicing above what I could do, put all the collection back on the business owner, raised their percentages, wanted only to factor for products – no services, and no longer “purchased” the owner; only “rented” it.

      However, I was VERY disappointed in factoring the next time I checked on what was available, it was worse. When I first started factoring, the company PURCHASES the invoice. They are responsible for collection efforts, and they assume SOME risk. Now, they do not want to even hold an invoice over 60 days, and the companies I talk to won’t even attempt collections until 45 days – why should they? They get paid more!

      I actually hired someone to do billing and collections for me for a while – and paid them reverse – higher percentage for earlier payments; lower for slow. My invoices were all being paid within 25 days!

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