Can I get invoice factoring with bad credit?

July 3, 2023

Bad credit describes individuals or businesses with a history of failing to repay bills or loans on time and in full. The term refers to credit history, with those who fail to meet their repayment demands subsequently having a poor credit history. 

For example, a company with a track record of late loan payments, as well as significant unpaid debt, may be said to 'have bad credit'. 

For this reason, those with bad credit struggle to borrow money in traditional ways or at attractive interest rates. They may have to agree to higher repayment rates or turn to alternative financing methods

So, where can those with poor credit turn when in need of cash flow to cover their own accounts payable or fund short-term growth to establish themselves in the market?

Invoice factoring is an attractive solution as customers simply enjoy quicker access to money they are already owed through their unpaid invoices. This means there are no long-term repayment obligations that can cause problems for those with a history of bad credit. 

How to Get Business Funding with Bad Credit

Bad credit can see many businesses fail to qualify for financing with traditional lenders such as banks.

However, this is not the only way for businesses to access capital - and there are many alternative financing options available that do not consider credit history in the application process.

Businesses with bad credit - or even new or small businesses without a proven credit history - can access various alternative lending solutions with unique application criteria and repayment structures, including invoice factoring...


Invoice Factoring Solutions for Bad Credit

Invoice factoring is a funding solution in which suppliers sell their accounts receivable (unpaid invoices with delayed payment terms) to a factoring provider to access immediate capital.

Businesses experiencing cash flow issues can access liquid capital to pay their own debts or fund growth projects. And as the business is simply leveraging its unpaid invoices to access the funds, there is no risk of significant, long-term repayment fees, as there would be with traditional lending.

This makes invoice factoring an attractive solution for those with bad credit, as factoring providers are unlikely to need to run a credit check. Invoice factoring companies advance funds against individual invoices based on the Buyer's creditworthiness. The factoring provider buys the unpaid invoice for a slightly discounted rate, meaning there is less risk than lenders assume when offering a traditional loan.

Plus, those with bad credit can use this immediate capital to pay off any outstanding debts on time and in full - helping them to improve their credit score or avoid being affected by late payments.

Stenn only requires two documents to be signed to qualify for funding, so we don't need to see your credit score. 

Find out more about factoring solutions in our guide to invoice financing or apply for finance with Stenn now.


Reasons for a Bad Credit Score 

A credit score is used to determine the likelihood of an applicant to successfully qualify for financing. It reflects their history of financial management - with a good credit score suggesting they have a track record of paying debts on time and in full. 

But what are the possible reasons for a bad credit score?:

  • Payment history - credit scores are based largely on the applicant's track record of repaying debts in full and on time.
  • Total debt - if the applicant has a significant amount of outstanding debt, this will be reflected in a poor credit history.
  • CCJs or insolvency - county court judgements or bankruptcy suggest poor money management and will be reflected in a business' credit score.
  • How finances are filed - finances must be filed with the appropriate regulator (e.g., Companies House in the UK) on time and in full. Late or short-hand accounts will be looked at negatively and reflected in poor credit scores.
  • Multiple credit applications - making multiple hard credit checks at the same time can negatively impact credit scores.


How Can I Find Out My Credit Score?

Individuals and businesses can easily review their credit score online, through a specialist credit bureau, such as Experian.

The score will be presented as a number on a scale (for example, between 0 and 100), with the higher the score, the greater the creditworthiness (likelihood of successfully applying for credit) of the applicant.

Simply checking a credit score in this way is known as a 'soft credit check' and has no bearing on the score itself. However, 'hard credit checks', such as applying for financing, can be considered in the score itself - especially when multiple applications are made at the same time.

Other Funding Solutions with Bad Credit 

While credit scores are often considered by traditional lenders when reviewing applications for finance, many alternative lenders - such as invoice factoring providers - do not determine their decision on bad credit. 

This is because of the unique funding and repayment structures used in alternative financing, that do not require traditional long-term repayment plans. 

So, it is possible for businesses with bad credit to access funding through a variety of suppliers. Some alternatives to bank loans and invoice factoring for bad credit include:

  • Secured business loan - those with bad credit may be more likely to qualify for a secured business loan, as they are required to pledge assets as collateral, which will be seized if they fail to repay the loan. For businesses, this often includes property, equipment and stock.
  • Revenue-based Financing - these agreements may be attractive for new or small businesses that have not yet built up a strong credit history. Instead of committing to long-term repayments with significant interest rates, e-commerce businesses repay funding as a percentage of their monthly revenue - meaning repayments scale affordably in relation to their current financial situation.
  • Crowdfunding - a popular financing method for those with bad credit, as funding is not raised through traditional banks or finance providers.
  • Merchant cash advance - similar to revenue-based financing, funding is repaid as a percentage of future sales, making it attractive to start-ups and SMEs.
  • Peer-to-peer lending - another funding solution that is not regulated or provided by traditional lenders, meaning those with bad credit are more likely to qualify.

Find out more about different types of alternative financing - aimed at those with bad credit who may struggle to qualify for traditional loans - in our guide.


How to Improve a Credit Score

Bad credit can determine a business' ability to qualify for financing - especially from traditional lenders like banks. And if they do qualify for funding, it is likely to be at an unaffordable interest rate, effectively pricing them out of the funding service.

So, how can you improve your credit score to increase the likelihood of qualifying for financing in the future?

  • Meet repayment requirements - always pay debts in full and on time.
  • Only borrow what you can repay - and do not agree to any loans, payment structures or accounts payable that you cannot meet.
  • Maintain strong personal finances - especially as the owner of a small business, as this may be taken into account for start-ups or new businesses without a long credit history.
  • Seek alternative funding - as these methods do not require traditional loan repayments - avoiding the risk of defaulting on payments and affecting credit ratings even further.
  • Keep all information updated - including all business details, and publish full accounts for complete transparency - not abbreviated accounts.
  • Keep track of your credit score - spotting any issues and addressing them straight away is key to maintaining a good score.

Frequently Asked Questions (FAQs)

  •    How long does it take to improve a credit score?

Depending on the current financial standing of the applicant, it can take anywhere from a month to multiple years to improve a credit score. In just one month, it is possible for an individual or business to make timely and full repayments on any debts they are owed - minimising any outstanding debts they owe and demonstrating an ability to make repayments. 

However, for those with a significant amount of debt or a long history of poor credit, it may take a longer period of positive financial management to drastically improve a bad credit score.

  •    How low can a credit score go?

The lowest a credit score can go depends on the credit bureau's rating system. For example, Experian's business credit score rating ranges from 0 to 100, with 0 being the lowest possible credit score possible. However, all credit scores below 40 are deemed high risk by Experian.

  •    Do factoring companies check your credit?

No, factoring companies typically do not check applicants' credit scores. This is because factoring agreements do not require traditional loan repayments and those using factoring services only access financing against funds they are already owed, so there is less risk to the factoring provider. Invoice factoring companies advance funds against individual invoices based on the Buyer's creditworthiness, so applicants are much more likely to be approved for financing.


About the Authors

This article is authored by the Stenn research team and is part of our educational series.

Stenn is the largest and fastest-growing online platform for financing small and medium-sized businesses engaged in international trade. It is based in London, provides financing services in 74 countries and is backed by financial giants like HSBC, Barclays, Natixis and many others.

Stenn provides liquid cash to SMEs within the global financial system. On you can apply online for financing and trade credit protection from $10 000 to $10 million (USD). Only two documents are required. No collateral is needed and funds are transferred within 48 hours of approval.

Check the financing limit available on your deal or go straight to Stenn's easy online application form.


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