Late payment of invoices is one of the major issues in the business world. Even if a business is performing well, late payments from customers or clients can interrupt cash flow and have a major impact on the growth potential. Additionally, they cause a big hiccup in production or even cause your business to stall out completely. Are you ready to compromise on your business growth in such circumstances? Certainly not! With express invoice financing, a lender gives you an advance on your pending invoices, minus a small percentage fee.
What is Invoice Factoring?
As a business owner, you know that invoices can be outstanding from 30, 60 to even 90 days before people pay their bills. That’s a long time to have your cash flow held up. Without those funds coming in, you can get behind on payroll or being able to reorder supplies. But now some extra smart people have come up with a way to mitigate this problem. It is called invoice financing. This term is interchangeable with a few others out there, such as accounts receivable financing and also factoring. All these terms basically mean solutions to turn unpaid invoices into available funds for your business. In order for invoice financing to happen, you need three parties involved:
- The company that needs cash flow
- The customer that has not yet paid their invoices
- The financing company who has the cash flow
This party is often referred to as the factor in this scenario. Banks view invoice finances as a legitimate, favorable funding option and alternative lenders can provide all kinds of flexible terms that work with your needs. There are a lot of varying terms and conditions with invoice financing, so it’s best to get familiar with it through a highly reputable lender.
Why might it be Advantageous for Your Business to Use Invoice Factoring?
It used to be that invoice financing was only used by companies in construction or medical services, transportation, staffing, wholesale trade, and manufacturing. But with so many online startups, invoice financing is a widely used option for cash flow. It is much more common in a whole range of fields. There are thousands of online startups in IT and PR that have discovered the reliable benefits of invoice financing.
If your B2B company has a long payment cycle or has little cash flow, invoice financing is your ultimate solution to deal with the ongoing financial needs of your business. But if your business does not use invoicing, it is not an option. If your business also makes payment upon delivery, then invoice financing is not the one for your company. If your business has excellent customer care and service, you may wonder what your loyal customers will think about you using invoice financing.
The truth is, most financiers or “factoring” companies will verify all invoices before purchasing them. This means that they’ll double-check that the service or product was acceptable to the customer. Customers will be contacted directly by the factoring company, and a great factoring company has friendly, well-trained staff who aren’t going to try and hustle customers. They want customers to pay their invoices, and they know that customer loyalty is essential. It’s necessary that all parties be satisfied with either cash flow terms or products and services. This quality check to occur before a factoring company takes ownership of the invoice.
More Advantages of Invoice Factoring
Obviously, the most significant reason you’re considering invoice factoring is the need for more cash flow. And you will most certainly get the cash flow your business needs with this service. This way you would be able to keep any chances of a liquidity crunch at bay. Invoice factoring will put you in a better position to pay-off company expenses.
Another benefit to invoice factoring is that it allows you to be generous with time. You can give your customers more time because you already have the cash flow upfront. Sometimes when cash flow is a problem, a business owner will consider taking out a short or long term loan. That can seem like a good solution to a cash problem, but it isn’t always easy to qualify for a loan. Invoice financing is different. It’s relatively easy to qualify.
Also, a factoring line can be installed quickly. It takes about a week or two to establish, which makes it great if your business is really in a crunch. The application process for invoice financing is also more straightforward than a lot of loan solutions. And there’s usually greater flexibility as your business and invoicing increase, so can your factoring line.
Lastly, you might be wondering, what is the rate for invoice factoring? Typically, a factoring company charges about 2 percent for the first 30 days and about 0.5 percent for every day that the invoice is still not paid. A legitimate factoring company will confirm these and other important numbers when you make an appointment to discuss invoice factoring for your business.
Invoice financing may not be the right option for every company, but if the term, “loan” makes you nervous, invoice financing may be the alternate solution for you. It helps your customers to continue paying their bills and provide the cash flow you need to stay on everyone’s radar as the number one small to mid-sized business. The how of invoice financing is basically also the why! It’s quite a simple and streamlined financing option where all parties get what they need. This option allows your business to:
- Get paid on time and receives the cash flow to stay afloat
- The financer collects a fee
- The customer pays only the original amount from the invoice
Conclusion
There are many factoring companies that make it their goal to please both the business and the customer. Every business struggles with cash flow; that is nothing new. But companies that process invoices struggle with it most. That’s why invoice financing is such a great way to stay on top. If you want to get the most of life as an entrepreneur, your top priority should be to avoid a liquidity crunch.
However, there comes a time in every business’s life when it has to deal with a shortage of funds. Therefore, you should always be ready for such a situation with an effective plan, which should or could include invoice factoring. The option comes with a number of benefits, as discussed above, the best of which is that you have to pay to the lender only the amount that is used and you don’t have to apply for a short or long-term loan on difficult terms.
Another great thing is that it allows you to continue your business operations in a way that doesn’t bother your customers and clients. It is you who is at the core of this problem and its solution. So, if you’re looking to continue your business growth without having to wait for the invoice payments, try out invoice factoring today.
Mathew Jade
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