You’re a business. You need money to grow your business. And you want to avoid the hassle of using your cash and going to other people for loans. So is there a solution? Of course, there is. Invoice financing service providers can help you get the money you need fast and with minimum hassle. Here’s everything you need to know about invoice financing and how it can help your business.
What Is Invoice Financing?
When you’re starting a business, making money and keeping costs low are two of your biggest priorities. For any business that issues invoices — in other words, almost every business — accounts receivable financing is an option that helps you get paid faster and use that money for your own goals.
Accounts receivable financing, or invoice financing, is a type of funding that uses unpaid customer invoices as collateral for a cash advance. Financing invoices will provide the cash you need to keep your operations running smoothly — and even help you grow.
Benefits of Invoice Financing
Here are some of the benefits of invoice financing:
No need to wait for payment. You can advance the cash within 24 hours when you invoice your customers.
Flexible terms. It’s good to shop around for an invoice factoring company with flexible terms. Some will offer same-day payments, no fees, fixed rates, and fraud protection.
Credit ratings don’t matter. You won’t have to worry about having a poor credit rating impacting your ability to get funding when you use invoice financing.
Advances of up to 90%. You can get up to 90% of the value of your invoices upfront, which means you don’t have to worry about waiting 30 or 60 days for payment from your customers.
You can scale up quickly. Once you’ve seen that you’re in a position to benefit from invoice financing, you can increase the amount of money that you need so that your business continues growing at a fast pace.
How do I get started with invoice financing?
To get started with invoice financing, you’ll want to find a company that will work with your specific business needs. For example, some companies might be able to handle a larger volume of invoices than others. This is something you’ll want to ask about since it can make a big difference in how much money you can receive from invoice financing.
Once you’ve chosen your provider and signed the contract, you’ll be asked to provide information on the invoices you want to finance. You can expect them to ask for information like the amount due on each invoice and the due date of each invoice. Your provider should then be able to give you an estimate of how much they’re willing to advance.
Once your customers pay their outstanding invoices, your provider will take out their fee. After they approve your invoices, they’ll send you the funds within 24 hours (or as soon as possible). At this point, it’s up to you what you do with your money — use it towards new equipment or payroll or any other expense that might have previously been out of reach.
What Are the Different Types of Invoice Financing?
As you might suspect, there are different ways to structure invoice financing. If you’re researching this option for your business, it’s essential to understand the various types of invoice financing. Here’s what you need to know:
Trade finance: This broad term can refer to multiple financing methods. It generally involves borrowing against inventory or accounts receivables.
Accounts receivable financing: This type of financing uses outstanding invoices as collateral for a loan. You can receive funding by selling your invoices outright or with a factoring arrangement. With “factor-to-own,” you sell your invoices and then repurchase them when payment is received, plus interest and fees. In some cases, you can use invoice financing as a line of credit, where the lender advances up to 80% of the invoice amount, and you pay back the principal plus interest upon receipt of payment from your customer.
Purchase order financing: A lender will provide funds to pay your suppliers in exchange for accounts receivable or inventory as collateral. You may have the option to pay back this loan when you receive payment from your customer; alternatively, you can negotiate with the lender for a buyout.
As you’re probably aware, invoice financing has been around for a long time. And although it’s a tried and tested solution for businesses in need of capital, it is still new to most people. But that’s changing. Invoice financing is becoming more and more accessible, making it an ideal solution for any number of businesses. We hope this guide gave you some clarity on the matter and the confidence you need to make the most out of your invoice financing experience.