What Type of Invoices Can Be Factored?
Not every invoice qualifies, so it’s worth knowing what makes one factorable before you count on it. The good news is that the rules are sensible, and most standard B2B invoices fit just fine.
At the most basic level, a factorable invoice is one that is owed by another business (or a government entity) for goods or services you’ve already delivered. A few characteristics define a clean, fundable invoice:
It’s a B2B or B2G invoice. Factoring is for business-to-business and business-to-government receivables. Invoices to individual consumers generally can’t be factored.
The work is done. The invoice should represent completed, delivered, accepted work or shipped goods. Factors are buying a confirmed obligation, not work that’s still in progress.
It’s payable on terms. The whole point is bridging the gap created by net-30, net-60, or net-90 terms. An invoice already paid, or one due immediately, doesn’t need factoring.
It’s undisputed. The customer should agree they owe the amount. If there’s a dispute about quality, quantity, or delivery, the invoice isn’t clean enough to fund until the dispute is resolved.
It’s free of competing claims. The invoice shouldn’t already be pledged as collateral to a lender or otherwise encumbered, since the factor needs a clear claim to it.
It’s owed by a creditworthy customer. Since your customer pays it, their financial reliability matters.
What typically can’t be factored: invoices for work not yet performed, consumer (B2C) invoices, invoices that are already very old and past due, invoices to customers in serious financial trouble, and invoices subject to unusual conditions like consignment or guaranteed-sale arrangements.
There are also industry nuances. Construction invoices can be more complex because of progress billing, retainage, and lien rights — they’re factorable, but not all factors work with construction companies or will purchase construction related invoices. Medical receivables, government invoices, and international invoices each have their own specialized handling.
The practical takeaway: your standard invoices to solid business customers, for work you’ve completed, on normal payment terms, are exactly what factoring is built for. If you’re unsure whether a particular invoice qualifies, just ask — a good factor will tell you quickly whether it fits.
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