Invoice financing is an excellent choice for companies – both large and small – which want to have some security regarding the payment of their invoices, create a more stable and secure cash flow, and grow their business. It’s surprising that more business managers don’t take advantage of it, more often; there are plenty of benefits.
So why don’t more business owners take advantage of this financing option? The explanation is simple; not enough business owners or managers understand the process of invoice financing. This is in spite of invoice financing being one of the top options accountants pick for business funding.
Have you ever wondered how your invoices can generate a guaranteed income with a minimal amount of risk? Here are the top facts about invoice financing and its benefits you should know.
Invoice trading
Imagine you have issued an invoice, the amount is due after a couple of months, and you would like that money sooner than that, to improve your cash flow. There’s a solution: you can trade your invoice. You sell it and receive a part of the invoice value, and then the buyer takes care of collecting the due sum from the client. The buyer considers it an investment, while you, the seller, immediately receive a discounted amount (varies from buyer to buyer), which you can use for other business transactions.
Factoring
This is very similar to invoice trading, except quicker. There are agencies which are willing to accept your invoice(s) and pay you very quickly (usually within 48 hours) the amount agreed, usually a percentage of the invoice value (about 85%). It’s a sure way to guarantee healthy cash flow for your business.
Invoice discounting
You don’t sell your invoice(s), you borrow money using the invoice(s) as collateral. This is usually a good idea if you want transactions to be confidential, though the funding is limited.
What to consider
How to choose what’s right for your business depends on many factors, and different solutions exist for different scenarios.
If you have absolutely no problems collecting invoice payments due from clients, and already have a healthy cash flow, then the above options might not be necessary.
On the other hand, it’s always good to do your research and know what business financing solutions are available. It’s rare that a company never experiences cash flow related issues as a result of late payment or non-payment of invoices at some point in time. It’s good to know there are certain options available, as a backup plan, when things don’t go according to plan, or if you wish to grow your business quickly.
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