Every so often we get a call form a prospect who is interested in factoring old invoices. By “old” we mean an invoice that is substantially past due such as an invoice that is 120 days old or more.  The short answer is that those invoice are impossible to factor and no factoring company will purchase them. This can be a subject of confusion since factoring companies usually state they buy slow paying invoices. This article will help clarify this point.

Factoring is a tool that you can use to improve your cash flow but it only works  if your customers are solid – albeit slow – payers. This is actually a very common occurrence. Most large companies tend to be solid payers, but they also pay slowly. The main reason large companies pay slowly is because it helps their own cash flow. These types of invoices – those that are up to net 60 days and from credit worthy customers are good candidates for factoring.

Most invoice factoring transactions are structures using a two payment model. The first payment , called the advance, is usually given to your company as soon as you invoice your client. Most advances are for 80% of the invoice – the remaining 20% is held in reserve until the invoice is paid in full. Once the invoice is actually paid, you get a rebate of the remaining 20% (less the factoring fee). However, factoring companies will only finance invoices where the payer is a solid company with good credit. Furthermore, they will only buy invoices that pay in less than 90 days.

As you can see, invoices that have a collection problem are not a good candidate for factoring. And if you cannot come into an agreement with your customer about payment, your best option if to speak with a professional in collections.

Most Canadian businesses are at an advantage over their US and world counterparts. While most developed countries have endured a harsh recession that almost destroyed their banking systems, Canada has weathered the recession fairly well and has kept a strong banking sector. This means most companies are in a better position to capitalize on the growth that recovering economies will see in the near future. Wholesalers and distributors are no exception to this.

However, like many types of businesses, a number of wholesalers have cash flow problems due to slow paying clients. This recession did exacerbate this problem because many customers started paying their bills later in order to preserve cash. At the same time, suppliers started demanding faster payments. This placed wholesalers right in the middle of this problem – they have immediate expenses but slow revenues. Larger wholesalers can handle this by using their cash reserves. Small wholesales usually don’t have substantial cash reserves and may run into serious cash flow issues.

One way to solve this cash flow problem is to use invoice discounting.  This business financing tool, commonly known as factoring in other countries , can help companies whose biggest problem is that they have slow paying customers. A invoice discounting solution will provide you with a quick payment for your invoices, streamlining your revenues and allowing you to cover business expenses.  This enables you to run your business without having to worry about when your clients will pay you.

The transaction works by using an intermediary called a factoring company. The factoring company advances you the funds for your invoices and waits for your customers to pay. The transaction is settled once your customer pays the invoice in full. One big advantage of invoice discounting is that it’s easier to get than conventional business financing. The most important qualification is that you do business with reputable and credit worthy commercial clients. Aside from that, your company needs to be free of liens, legal and/or tax problems.