Invoice financing is a way in which you can take money against the amounts due from customers. Sometimes in a business, payments do not reach you in an anticipated amount of time, due to various reasons. This is where invoice financing for small businesses comes into the picture. It helps a business to maintain cash flow, make payments to the employees, and ensure the business grows faster than it ever could. At least faster than they had to wait until their customers made their full payments. Invoice financing is a type of flexible funding that can help with the difficulties in obtaining other types of business credits too.
We can structure invoice financing in many ways. The most common ways are factoring or discounting.
Invoice factoring is a way in which a company sells its important invoices to a lender. In return, the lender pays seventy to eighty-five percent of the actual worth of the invoices to the company. Once the lender receives the payment for the invoices, he will then remit the balance which is fifteen to thirty percent of the invoice amounts to the business and the business will pay the lender his fees. As the payment is collected by the lenders from the customers, the awareness of the customers might be bad for the company.
Instead of invoice financing companies can always go for invoice discounting. Both invoice financing and invoice discounting are almost similar kinds of flexible funding. The only difference is that the company itself collects the payment instead of a lender. This makes the customers unaware of the arrangement. This keeps the company in the good books of the customer. Another benefit is that when a consumer pays their invoices, the business repays the lender, an amount that excludes an interest or a fee.
Invoice financing for small businesses has many advantages that make it unique from any other source of business finance
Availability of funding
An invoice finance facility can be set up usually within a week or two of your initial contact with a provider. They release the funds within 24 hours of issuing to a customer from an invoice. That also enables you to mend the shortage of cash flow and raise money for your other business expenses.
Confidence and to extend payment terms
The growth of small businesses is usually stunned by waiting for payments. And if you apply the basic payment terms you may lose your customers. With the help of invoice finance, a business can make customer-friendly payment terms. It will not impact the cash flow.
Easy to meet the qualifications requirements
Invoice financing is an easy option to qualify for, compared to other business funding options. The basic criteria for a business to qualify are that the business should be financially stable and should be dealing with reliable customers.
Easy cash flow
The main reason for any small businesses to opt for invoice finance is the improvement of cash-flow. It also enables companies to fund new opportunities and puts the business in a better position.
No requirement for security
An invoice finance agreement does not always require assets as security. In most cases, the invoice is security in itself. It becomes easy when you do not have to mortgage assets to run a business.
In short, invoice finance is a valuable facility for companies whose progression is stunned due to the slow payment by consumers. A good Cash Flow is important for the survival of any business be it small or large. However, sometimes it becomes unmanageable. The routine expenses or salary of the employees becomes difficult to handle. Hence, flexible funding can rescue the company by offering instant funds for the same. Invoice financing for small businesses helps the company to maintain the cash flow and have economic growth. It is believed that every business is unique and places the clients in a suitable funding plan for maximum growth potential.