Invoice financing offers flexible funding and is dependent fully on your outgoing invoices. As you send invoices to your clients your lender will cover the correlating amount to the full invoices owed. it proves to be an amazing option for growing businesses, companies with cash flow issues, and SMEs. You will be offered a part of the unpaid invoice by the lenders when it is issued initially to your client and you get the invoice’s balance once it is paid, deducting their internal fees and interest.
Other Names for Invoice Financing
Invoice finance is also known as accounts receivables finance, receivables finance, invoice discounting, and invoice factoring.
Who Uses Invoice Financing?
Many businesses use invoice financing as it is one of the most well-known and accessible types of finance for growing companies. More than 30,000 small companies use invoice financing as their funding option, and this number keeps on increasing with every passing year. One of the reasons behind this growth is the fact that many independent firms and banks who also offer a similar service push this option. Since debtor book is the sole security you require with invoice financing it makes it a more attractive option compared to bank finance.
How Does Invoice Financing Work?
1. You offer the services/products to your clients and give them an invoice.
2. Next, you send this invoice details to your invoice finance provider.
3. A certain percentage of the invoice’s face value is paid to you, generally within 48 hours.
4. Depending on the kind of invoice factoring, you either will carry out a normal payment chasing or your invoice finance provider will control your client relationship.
5. Once your debtor clears the payment, the part of the invoice that you did not get will be given back to you, minus the service fee.
Benefits of Invoice Financing
There are various benefits that invoice financing offers, including
• It minimizes late payment impacts
• There is no need of any other assets yet funding can be secured
• The available funding level increases in sequence with the turnover
• It is possible to raise more cash than one can with overdraft facility or bank loan
• Even big companies can make use of invoice financing for low-rate borrowing, with no interest accumulation and fees agreed upfront.
So, invoice financing indeed is a very good option. However, you need to be very careful while selecting your provider. Find out the one who will lend you maximum money. Also, give importance to how they deal with their customers and how reliable they are. Once you find the right one, go through the contract details very carefully, sign it, and enjoy the benefits of invoice financing.