Why Do Factoring Companies Ask for Tax Documents?

Business A/R Financing with Tax Problems

Factoring Companies need your A/R Invoices Free & Clear to Fund Your Business.

Prospective clients are sometimes surprised when a factoring company asks for copies of their latest IRS 941 or other tax documents like annual filings. Factoring prospects ask, “why do factoring companies ask for these documents?”

The reason is straightforward: the factor wants to ensure there are no liens in place that could prevent it from factoring your receivables and invoices. Moreover, the IRS Form 941 reports income taxes, social security, and Medicare taxes from employees’ paychecks. Accordingly, Form 941 can demonstrate your tax compliance and current standing. That is why we also ask for your tax returns.

Tax liens happen, non-payment of taxes occurs, and your corporate assets have claims against them by the IRS. Thus, the IRS could claim the revenue of a factored invoice and receive the claim to the invoice before the factoring company is paid. This is a method for factors to check tax documents.

What if you have tax issues?

Is factoring an option for an organization with tax problems? Yes, it is an option for companies when tax problems arise. More importantly, factoring can finance companies with tax problems when utilized optimally. Bankers Factoring has a factoring with tax liens solution for you.

For example, in “distressed company financing” situations, invoice factoring or AR financing can be beneficial. 

Bankers Factoring and IRS Lien Subordinations

However, the process is slightly longer than the standard factoring qualifying process. Your company or tax representative (we can make a recommendation) needs to connect with the IRS to get lien subordination, allowing Bankers Factoring to have the first claim or position on the factored invoices. The claim or position is the party that receives payment from the invoice when the customer pays.

Once the IRS issues a subordination, we can keep you current on your payment plan as we continuously fund you as you generate good B2B or B2G invoices. And our factoring rates are cheaper than swiping a credit card or alternative lenders like MCAs for small business owners.

Bankers Factoring has accounts receivable factoring lines for companies with tax problems. Invoice factoring can provide the necessary cash flow to resolve tax problems and keep your business growing and operating.

Tax Lien Subordination

It is wise to retain an attorney when negotiating lien subordination and inter-creditor agreements, as they are complex matters. The process of lien subordination requires your company, the factoring company, and the IRS to reach an agreement. More importantly, the ability to work through these tax problems is one way to make factoring a financing option for your business.

Bankers Factoring has decades of experience working through tax issues, so we stand ready to help.

An IRS lien subordination does not solve your tax problems. However, it could allow you to get a loan or refinance your home, freeing up more money to pay off your taxes owed. If the IRS issues you a certificate of subordination, the IRS tax lien remains just at a lower priority. 

If your company has tax problems and you are looking to factor in your invoices, it is usually best to disclose that information at the start of the application process. Full disclosure allows you and the factoring company to plan things accordingly.

How Factoring Works to Solve Tax Problems

A/R factoring or invoice factoring is a type of financing in which companies can receive a cash advance on their accounts receivable. Bankers Factoring buys one of your company’s most liquid assets, your unpaid invoices or open A/R, and provides a competitive 80-90% cash advance on the value of your receivables. More importantly, you can use this funding to meet financial commitments – tax bills, marketing plans, operating expenses, expansion initiatives, and capital projects.

Once Bankers Factoring receives payment on the receivables from your customer, the remaining balance is remitted to the client, less a small fee, called the earned factoring reserve or rebate.

Invoice factoring is considered the sale of your invoices to a finance company. If the IRS has a lien against your invoices, the factor will not be able to buy your invoices because the IRS is claiming them as collateral for the tax debt, in much the same way the bank claims your house as collateral for a mortgage.

Bankers Factoring understands business taxes, payment plans, and tax laws at the federal and state level, and can get you funded with our invoice factoring with tax issues program. Our small business financing with tax issues turns a company asset into ready working capital.

Ready for the owner-employees of Bankers Factoring to fund your entrepreneurial dreams even with tax issues? Call 866-598-4295 or go to Bankers-Factoring-Application.

• Facebook
• Twitter
• LinkedIn

Disclaimer: This article does not intend to provide legal or financial advice. Please consult a qualified adviser if you need advice.