Understanding the Invoice Factoring Approval Process

Business owner reviewing an invoice while learning about the invoice factoring approval process and how businesses access working capital from unpaid invoices.

Many business owners hear about invoice factoring and assume it works like a loan — apply today and receive funding within a few days. In reality, invoice factoring is a structured financial facility, not a once-off loan.

A funder advances money against your invoices, which means a detailed approval and onboarding process must take place first. This means you cannot usually access a factoring facility immediately. The process takes time, but once it is approved and set up, it becomes a revolving source of working capital for your business.

This article explains the typical steps involved so you know exactly what to expect if you decide to apply.

Why the Approval Process Takes Time

Invoice factoring works very differently from traditional funding.

Instead of lending money based on your affordability or profit history, the funder is financing work your business has already completed and invoiced. The facility is structured around:

Your business
Your clients (your debtors)
Your invoices
Your trading history

For this reason, the funder must carefully assess both your company and the companies that owe you money before approving the facility.

Banner illustrating Step 1 of the invoice factoring process, explaining how invoice factoring works for businesses that want to convert unpaid invoices into working capital.

Understanding How Invoice Factoring Works

Before starting the process, it is important that you understand how invoice factoring works and what the requirements are.

This includes understanding:

How your invoices will be funded
How your clients will pay funded invoices
The role the funder plays in the process
The cost of the facility

This step ensures that invoice factoring is the right solution for your business before you proceed with the application.

Banner illustrating Step 2 of the invoice factoring approval process where the funder requests business documents and performs an initial assessment of the company and debtor book.

Document Request and Initial Assessment

Once you confirm that you would like to proceed, the funder will require supporting documentation.

This usually includes:

Your company registration documents (CIPC)
Latest financial statements
Recent management accounts if financials are older than three months
Your debtors book
Business bank statements
Trade history with clients that owe your business money

These documents help the funder understand:

The stability of your business
The strength of your debtor book
How your clients typically pay their invoices

Review and Feedback

After you have submitted all the required documents, the funder will begin reviewing your application.

In most cases, you will receive feedback within two working days after the full document pack has been received.

At this stage, the funder may:

Request additional information
Provide feedback on the application
Issue a proposal for a factoring facility

Step 4 Accepting the terms of the invoice factoring facility where the business owner reviews and agrees to the funding terms.

Accepting the Terms of the Facility

If your application is successful, you will receive a proposal outlining the terms of the factoring facility.

This typically includes:

The size of the facility
The advance percentage on invoices
The factor rate
Payment terms
The collection method for invoices

At this stage, you will also decide how payments from your clients will be collected.

Due Diligence and Site Visit

Before final approval is granted, the funder will usually conduct a site visit.

This involves an in-person meeting where the funder reviews your business operations and verifies the information provided during the application.

The purpose of this step is to:

Confirm how your business operates
Verify the information submitted in your application
Ensure that your debtor relationships are legitimate

This is a standard part of the due diligence process for invoice factoring facilities.

Contracts and Legal Agreements

Once the site visit has been completed successfully, the facility agreements will be issued.

These contracts outline:

The terms of the facility
The responsibilities of both parties
The process for funding invoices

The agreements must be signed before the facility can become active.

Onboarding and System Setup

After the contracts have been signed, you will be introduced to your account executive.

An onboarding session will then be scheduled to show you how the funder’s system works.

During this session, you will learn:

How to submit invoices for funding
How the online portal works
How payments are processed
How to track funded invoices

Banking Setup

To secure the facility, a controlled payment structure must be put in place.

This means that invoices funded through the facility must be paid into a specific bank account.

There are two possible options:

Option 1: Your clients pay the funder directly.
Option 2: A separate bank account is opened in your company name which the funder controls.

If a new bank account needs to be opened, this can add one to two weeks to the onboarding process while the account is created and confirmed by the bank.