For businesses that struggle with slow-paying clients, factoring companies can be a great way to improve their cash flow. However, business owners often wonder if factoring companies check their credit scores. If you’re asking this too, then this blog is for you.
Do Factoring Companies Check Your Credit Score?
Typically, factoring companies don’t check your credit score. The reason is that factoring is not a loan but a sale, so the factoring company doesn’t need to check if you are able to repay the amount you’ll obtain by factoring your invoices. (For a more detailed explanation of how factoring works, check the sections below).
Factoring companies tend to look at different things other than your credit, such as the age of your business, the size/number of your invoices, and your customers’ creditworthiness.
However, since there are always exceptions that prove the rule, the only way to be 100% certain that a factoring company won’t check your credit is by asking them directly before working with them.
How Does Factoring Work?
As mentioned earlier, factoring is a sale.
Factoring your unpaid invoices involves selling them to a factoring company (also known as factor) that pays you upfront and then collects the payment from your customers in exchange for a small fee.
This saves you the trouble of having to wait 30 to 90 days for your customers to pay you. With fast access to capital, you can take advantage of business opportunities or just meet obligations such as insurance, supplies, or materials.
Does Factoring Impact Your Credit Score?
Factoring of Accounts Receivable has no direct impact on your credit score.
The factoring process doesn’t involve any borrowing or debt creation on the part of the business selling its receivables.
In short, factoring doesn’t appear on your credit report, so it has no direct effect on your credit score.
Wrapping It Up
Factoring companies typically DO NOT check your credit. A factor focuses on other aspects of your business, such as the number of your invoices and your customers’ payment history. That’s why factoring is such a great option for businesses with poor or little credit history.
However, not all factors follow exactly the same procedures, so the only way to be completely sure that a factoring company won’t check your credit is by asking them before signing a contract.
To learn more about factoring, read our previous blogs, “What Is a Factoring Company?” and “Invoice Factoring Vs. Line Of Credit: Which One Is Better For Your Business?“
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.