Invoice Factoring Qualifications: What Your Business Needs to Know
Many small business owners assume invoice factoring qualifications are hard to qualify for or reserved for large companies. In reality, factoring is one of the most accessible financing options available—especially for growing B2B businesses that deal with slow-paying customers.
When you understand the basic qualification requirements, you can quickly determine whether factoring fits your company.
Unlike traditional bank loans, factoring companies focus on the strength of your invoices and the credit quality of your customers—not your business credit score. As a result, many companies that banks decline qualify easily for factoring.
*For more info see Factoring Frequently Asked Questions
Factoring Qualifications Require That You Must Operate Business-to-Business (B2B)
Invoice factoring requires your business to sell to other businesses rather than individual consumers.
Factoring companies purchase invoices, and those invoices must come from creditworthy commercial customers. Businesses that typically qualify include:
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Staffing firms billing corporate clients
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Manufacturers invoicing distributors
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Wholesalers selling to retailers
Companies that sell only to consumers generally do not qualify because factors cannot purchase consumer invoices.
Your Customers Must Demonstrate Strong Credit
Factoring companies advance funds based on your customers’ ability to pay. For this reason, they evaluate customer payment history and financial stability first.
If your customers consistently pay invoices on time, your business has a strong chance of approval. This focus explains why factoring approval rates exceed those of traditional financing.
Newer businesses and owners with limited or challenged credit often qualify when they invoice financially sound customers.
*See Commercial Credit Worthiness
Monthly Invoice Volume Must Meet Minimums
Most factoring companies set minimum monthly invoice requirements to maintain an efficient relationship.
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Some factors accept volumes as low as $10,000 per month
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Most prefer $25,000 or more in monthly billings
Factors often make exceptions for businesses that grow quickly, operate seasonally, or show upward sales trends.
The Factoring Company Must Hold First Position on Invoices
Factoring involves selling accounts receivable—not borrowing against them. Because of this structure, the factor must hold the senior position on your invoices.
If your business already has a bank line of credit or loan secured by receivables, you may still qualify. However, you must resolve or coordinate that lien before setting up a factoring arrangement.
Your Business Cannot Have Federal Tax Liens
Factoring companies typically require businesses to operate without federal tax liens.
IRS liens take priority over all other claims and prevent factors from safely advancing funds. Before approval, your business must satisfy or release any federal tax liens. In some cases, factors may allow state tax liens depending on their size and structure.
Invoice Factoring Qualifications Require That Invoices Must Be Complete and Current
Factoring companies purchase only valid, billable invoices that represent completed work or delivered goods.
Invoices must remain current and not past due. Some factors accept progress billing or milestone-based invoices when contracts clearly support them. However, factors do not purchase speculative or unearned invoices.
Fast, Practical Approval Process
Factoring companies approve accounts quickly and efficiently. Many businesses receive decisions within days rather than weeks, and funding often begins immediately after setup.
Factoring also offers:
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Flexible funding that scales with sales
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No long-term commitments in many programs
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Improved cash flow without added debt
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Less time spent managing collections
Is Factoring Right for Your Business?
If your business sells to other businesses, issues invoices, and experiences slow customer payments, factoring can provide a practical and flexible cash flow solution.
Factoring converts receivables into working capital and allows you to focus on growth instead of collections.
At First Capital, we work with hundreds of factoring partners nationwide to match businesses with solutions that fit their industry, size, and growth plans.
Complete a simple inquiry today to find out whether your business qualifies.