We all want a way to get easy small business funds without having to go through the tedious process of getting approved for a bank loan. On top of that, it takes time for it to come through even after getting approved. One more instance of a similar problem would be when your business makes sales but you only get payments after a month or so. This leaves you cash strapped and without expendable funds.
One of the key factors that determine whether a business can keep growing and expanding is ensuring that there is adequate cash flow to maintain its operations.
Invoice financing gives you extra room to breathe. It bridges the gap between sales and payments to keep your business functional. Furthermore, it gives another start-up financing option for small businesses that are in need of quick, reliant funding.
What is Invoice Financing?
Invoice Financing is a collective term. In the financial world, we use it to describe the various types of invoice-based lending options. This includes options like invoice discounting, invoice factoring, and spot factoring. It is one way for businesses to avail advances against outstanding invoices from their customer
After selling goods or providing services the business generates an invoice and bills the customer. Then, they pass the invoice to the invoice financing company. The invoice financing company will lend an agreed percentage of the invoice amount to the business within 48 hours. This helps business operations by giving them immediate cash flow. which allows them to pay their employees, suppliers, and reinvest in operations and growth instead of having to wait until their customers pay the due amount in full. After getting paid by the customer, the business then pays the borrowed amount and gets back the remaining invoice amount. The financing company will take a service fee as agreed upon. This usually depends on the amount that is being financed.
The Whole Process
Before choosing invoice financing, it is important to know how the entire funding process is carried out.
Most businesses usually sell their goods and services to their clients on the basis of credits. That means the customers do not have to pay upfront for the goods and services. Instead, they charge them on later dates. Now, when a business makes a sale it generates an invoice, whether the payment has been processed or not. With the help of invoice financing businesses can avail instant funding against such invoices.
- Once you generate an invoice, you forward it to the financing company.
- The financing company then reviews this invoice and gives the business a percentage of the invoice value as a loan to the business within 24 to 48 hours.
- After the invoice has been settled by the client, the business receives the remaining percentage of their invoice’s value minus the service fee levied by the financer.
Thus, this allows businesses to mobilize their capitals which would have been held up in unpaid invoices. The business has the luxury to wait for the customer to settle the outstanding invoice amount.
There is no contact between customers and the invoice financing company. Customers are not even aware that invoice financing had been done. This can often be good for the business since they do not have to pressure the customer to pay which would reflect badly on them.
The Advantages of Invoice Financing
The biggest advantage to invoice financing and the main reason why so many businesses choose these services is the impact it can make on your cash-flow. Being able to release the funds tied up in invoices almost instantly puts businesses in a better position to cover company expenses and capitalize on new opportunities.
Businesses are able to opt-in for a confidential agreement. In this, they do not make customers aware of the financing of the invoice. The business thus has complete control of their relationship with their clients and the process they use for collecting payments.
Ease of Use
Accessing funds through invoice financing is as simple as uploading an invoice and waiting for the investor to buy it. After you complete the trade, they can advance the funds in as little as four hours.
Obtaining a traditional loan requires filling in a lot of paperwork. Furthermore, the approval takes a long time. Invoice financing provides a cash advance in as little as 24 hours after the invoice has entered the system.
No Need of Collateral
Unlike other funding options, it is not necessary to provide assets as collateral. The invoice itself is the security. This makes invoice finance an option for businesses that do not have assets and cannot access other financial products.
Essentially invoice financing allows easy small business funds for the products provided and invoices so that the cash can be put back in the business to purchase more inputs to sell more products quicker, hence increasing turnover and profits.
If you think an invoice financing service would help your business and start-up financing either with inconsistent cash flow or growing and progressing as a company, it’s important to know the most appropriate deal. Invoice finance can provide an injection of cash to either aid a difficult period or take your business to the next level.