An invoice is the bill a seller sends a customer after delivering goods or performing services. It records what was provided, what it costs, and when and how the customer is expected to pay.
How it works in factoring
In factoring, the invoice is the asset being bought. A factor's advance, fee and collection effort all attach to specific invoices, so the document has to stand up on its own. A factorable invoice usually shows:
- The seller's and customer's legal names and addresses
- An invoice number and date
- A clear description of goods or services, with quantities and prices
- Payment terms, such as net 30
- Remittance instructions, which after a factoring agreement normally direct payment to the factor or its lockbox
Factors often ask for backup documents with each invoice: a signed delivery receipt, bill of lading, timesheet, purchase order or proof of completion. These show the work was actually done and accepted, which makes the invoice collectible.
Invoices for work not yet finished, or "pre-billed" invoices, are a common problem. Billing in advance of delivery can be treated as misrepresentation under most factoring agreements.
What to check
Before submitting invoices to a factor, confirm the customer name matches its legal entity, that the amounts tie to the purchase order, and that any credits or returns have been applied. Errors on the invoice slow down verification and can delay funding. If the invoice carries a notice of assignment, make sure the remit-to address is the one the factor gave you.