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EVERYTHING YOU SHOULD KNOW ABOUT INVOICE FINANCING

Is Invoice financing a good way to manage cash flow right now? Sure, it is because, with this method, businesses can balance their credits by selling the customer invoices to lenders and receive the cash immediately in their accounts. It is useful, especially for small businesses that are generally battling against long-term payments and find it hard to get funds issued by banks as their capital investment is not enough to convince the investors. 

A study shows that almost 60% of small businesses are most concerned about cash flow management. Moreover, 64% of small businesses fail because they have to wait for the payment clearance by their customers. However, with invoice financing solutions, all of these problems can be eliminated efficiently. Let’s find out how invoice financing helps small businesses in dealing with their financial crunch. 

SO HOW DOES INVOICE FINANCING HELP THE BUSINESSES? 

To be able to land big clients or orders, there is a need for strong economic backing, and this can only be done if entrepreneurs are absorbing and managing the capital investment, labor force, and profit share periodically. 

At the same time, businesses also have to ensure longer payment terms to their customers, which is not the case most of the time. However, with invoice financing, small businesses can make it happen because it allows them to receive the customer’s full payment before the mentioned time by submitting the invoice to a lending company. Also, there is no interest rate, but small fees and payment can be paid in installments in about 12-24 months. 

WHY IS IT NECESSARY?  

In this highly competitive era, only businesses with speedy turnaround time can beat their competitors. Businesses need to be on top of their game to make it happen, and invoice financing helps them in this cause. It not only helps in battling the long-term payment plan but also lets the companies regain their primary investment and profit share in much less time. It also streamlines the business operations, as with timely payment you can:

  • Book new seasonal demands by managing the inventory,
  • Pay your suppliers on an early basis,
  • Increase the staff,
  • Get new clients by offering them much longer payment plans then the commonly given time. 

HOW TO MAKE IT WORK FOR YOU?

No wonder, invoice financing is a multipurpose deal. It lets you borrow against your assets and helps you to do business with the unpaid invoices. The method is really simple. All you are required to do is create an account with the financing service of your choice. Secondly, make sure to link your account or business management system with it. Finally, select the invoice that you want to cash in advance. In less than one business day, you will be able to receive the full amount in your bank account with the limited cost of invoice financing for small businesses

WHY IS IT THE BEST FINANCIAL INSTRUMENT?

From long term bank loans to merchant cash solutions, small business owners and entrepreneurs have several options that they can use to stave off the financial challenge. However, unlike other financial instruments, invoice financing and factoring are quite a different option. Let us assume that a small company named Bird Box has an invoice of $1500, and they decided to get it encashed from an invoice finance company called Dollar. In 24 hours, Bird Box received $1500 in its company account and, according to the contract, was bound to pay $125 per month plus the fee. But here is the deal if the Bird Box cleared the whole amount in less than the contracted time, then the fee can be waived. It is the kind of luxury that no other financial instrument offers.

Moreover, companies can sell their invoices on discounts to such finance companies. But why is there a need to do so? As we all know, some customers are not easy to tackle, and sometimes demand a much longer time than one can hardly afford. Therefore, in such scenarios, selling the invoices could be a profitable agreement. In these cases, invoice finance companies take full charge of the payment and are themselves responsible for the payment clearance from the customer’s side. However, in regular cases, the invoice financing companies do not interfere in your business or with your customers, and only work in the background. 

SHOULD YOU TAKE INVOICE FINANCING OR NOT?

No wonder there are many financial solutions, but it does not mean that each one of them is right for everyone. Some factors should be considered while buying a financial idea or solution for your business. Therefore, in the case of invoice financing, entrepreneurs must analyze the following areas of their businesses:

  • Capacity and capability of the business
  • Capital investment
  • Revenue generation
  • Inventory & assets
  • Track record

Quite simply, businesses that need less than $500,000 of financial investment should consider invoice financing or factoring solutions. 

THE FINAL SUGGESTIONS:For big corporations, finding a financial instrument is not a big thing, but when it comes to smaller businesses, financial solutions are hard to come by. They have to comply with tough conditions to make ends meet. However, invoice financing is an exception as it offers companies the breathing space they require to deal with their lazy clients efficiently.

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