A balanced flow of cash is a must for the growth of any business. But maintaining a proper flow is not an easy task, especially when you have slow-paying customers.
Invoice financing—a way for businesses to borrow money against the amounts due from customers—could be the answer to your troubles.
But what exactly is invoice financing, and how does it work? And, most importantly, is invoice financing right for your business? To find out answers to these questions, keep reading.
What is Invoice Financing?
Invoice financing is a way for businesses to borrow money against the invoice amounts due from customers. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full.
Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money. Invoice financing can solve problems associated with customers taking a long time to pay, and it aid you with any difficulties in obtaining other types of business credit. Take a look at www.invoicefinancingaustralia.com.au/invoice-finance-factoring/ to learn more about how invoice financing can help your business to grow.
What’s the need for Invoice Financing?
A healthy cash flow is vitally important to the success of any business. So, if your business offers customers credit terms, you are able to remain profitable even while running into issues. Late payments are a significant challenge for SMEs in the B2B sector, and if it becomes a regular occurrence, you’ll be left staring at a cash flow problem much sooner than you may have been expecting.
It is a flexible solution, and a good fit for small businesses looking for alternative ways to obtain working capital. The path to a successful business can get bumpy every once in a while—invoice financing can help smooth out the ride.
Why is Invoice Financing a Viable Funding Solution for your Business?
If you are looking to ensure that the business cash flow remains steady at all times, it is an option you really should take a look at. Even when you get too many orders in one go, invoice financing ensures that you do not have to face any unexpected hiccups. You will still be able to finance all the things you need without having to look at a traditional bank loan.
Here is what you will love about it.
The major benefit of using Invoice Financing is that your business expenses will be paid on time. This allows you to better plan your cash flow and manage your expenses. Also, the financing company will take up the challenge your customers face for payments, thus keeping your time from being wasted in writing emails, letters, and the like. In a nutshell, Invoice financing will not only increase the amount of cash available, but also save your valuable time.
Less risk Attached
When compared with other funding options, there’s far less risk attached to Invoice Financing. You are, after all, borrowing against money you’ve already earned. And you won’t have to deal with fixed payment terms, as the factoring company will simply collect what your customers owe.
But the major issue comes when you have to decide whether Invoice Financing is going to benefit your business or not.
First, you need to analyze whether your cash flow issue will be fixed by it. Invoice Financing helps companies that have one very specific problem: they can’t afford to wait the usual 30 to 60 days to get their invoices paid. Basically, if you need funds to pay operational expenses, and simply cannot wait until you get paid by your customers, this option may be able to help you.
Second, you need to know whether your business is capable of affording the option in the first place. This type of financing is not always affordable for every business. Your fees will depend on a number of components, including the company you are working with, the creditworthiness of your customers, the number and size of the invoices you want to sell, the industry your business is in, and other considerations. You will have to look at your options and decide whether the cost is worth it to your business.
Last, but not least, you should evaluate whether your company qualifies for invoice financing. One important detail is that your invoices must be free and clear of liens (security interests). Aside from not having a lien on your accounts receivable, your company should have good invoicing practices and a track record of delivering your product or service with minimal (if any) problems.
One final note: If all the above points go in your favor, Invoice Financing could be the perfect solution to all your cash problems.