In a conventional invoice factoring transaction, the factoring company buys your invoices for an upfront payment. Now, when someone buys a tangible good (such as a home, a car or groceries) one can look at the goods before purchase to determine whether they are good or not – the goods are tangible. On the other hand, you have invoices which are intangible. They are financial obligations basically printed on a piece of paper or stored in a computer file. You can’t examine these obligations just by looking at the invoice.
This leaves factoring companies with a problem because just like any buyer, they want to make sure they are buying quality invoices (or “product”). The only way they can do this is through the invoice verification process. When verifying an invoice, most invoice factoring companies are concerned about three things:
- Is the invoice amount correct
- Where they goods/services delivered on time?
- Are the goods/services acceptable?
Most factoring companies verify invoices by sending an email to the accounts payable representative of the customer. Email is ideal because it’s not intrusive and it also leaves a written record of the communication. Others factoring companies prefer to handle verifications by telephone, mostly because it’s less impersonal than email. Lastly, some verifications require a customer signature – these are done by fax.
Factoring clients, understandably so, are usually concerned about invoice verifications because of the potentially negative effects it could have on the customer relationship. While it is true that most factoring companies handle these issues professionally, there is always the possibility that a customer relationship could be affected. Because of this, you should always ask a factoring company about their invoice verification procedures and you should be comfortable with them before you sign on as a client.
