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Do I need good credit for invoice factoring?

PUBLISHED ON: 29/07/2023

Can I use invoice factoring with a bad credit rating?

Invoice factoring is a flexible form of alternative funding that may be suitable for your business, even if you don't have good credit. It relies on the value of your sales ledger and can significantly improve the flow of cash every month.

In fact, factoring is a form of invoice finance that offers many benefits. These include speed of access to funds when compared with traditional bank lending, and the considerable time savings when the factor manages your sales ledger.

How does invoice factoring work?

When you use invoice factoring as a method of borrowing you receive an advance on each eligible invoice that you submit. Around 90% of the invoice total is typically released within 48 hours, providing you with regular injections of working capital throughout the month.

The remainder of the invoice is sent by the lender once the customer has paid in full, minus the lending fee. This constant flow of cash into the business helps you plan with greater confidence and ensures that you can pay your day-to-day bills as they fall due.

Your access to regular working capital grows along with the business as you take on additional good credit customers and send out more invoices. So if you don’t need a good credit rating for invoice factoring, how do you know if you’re eligible?

Invoice factoring and your credit rating

One of the most advantageous aspects of invoice factoring is that, unlike some other forms of lending, you don’t need a good credit score to be eligible. This is because the lender isn’t relying on a monthly repayment – they’re using the value locked within your sales ledger.

The creditworthiness of your customers is more relevant for factoring companies, rather than your own business’ credit rating. Focusing on the credit status of your customers helps lenders to measure their risk of not receiving full and timely payment of an invoice.

Eligibility for invoice factoring

When assessing your eligibility for invoice factoring, the lender will take into account how long you’ve been in business. They’ll also consider how long your customers have been in business, their history of timely payment of invoices, and overall creditworthiness.

A careful assessment is made of your customers’ payment patterns, how long you’ve done business with them, and whether there’s any history of late or missed payments. This means you don’t have to worry if your credit rating is poor.

UK Business Finance can guide you towards the best funding options for your business, and provide further professional advice on invoice factoring. Please contact one of the team to arrange a free consultation – we operate a network of offices around the country.

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