An increasingly popular source of finance for SMEs, start-ups and fledgling companies is invoice financing. This trend has gained particular momentum since 2007, when the financial crash launched the economy into chaos, causing lenders to severely limit those they would allow borrowing from them. Invoice finance stepped into this funding void, helping many businesses to get back on their feet and secure their futures.
However, the concept continues to be misunderstood by many, which is strange considering its simplicity. Invoice financing works by selling your unpaid invoices to a third party. These financiers pay you the amount, or a percentage of the amount, owed up front, providing instant access to hard capital. For businesses that require a constant flow of cash through their hands to cover their day-to-day running costs, such a service can prove invaluable.
But how, exactly, could invoice financing benefit your business. We can think of at least five different ways…
#1: It Offers Instant Access to Hard Capital
The most obvious boon of invoice financing is that it provides almost immediate access to cash funds. For small businesses, repeated late payments can be enough to bring commerce to its knees. Irrespective of what you’re owed, if you don’t have the money to pay your suppliers, rent, staff wages, and all of the other costs associated with your business, you can find yourself in a spot of bother. With invoice financing, you get the money you need when you need it.
#2: It Will Save You Time
There are two types of invoice financing: factoring and discounting. If you choose a factoring financier, then they’ll take on the burden of collecting your debts for you, as well as managing your sales ledgers. With these tasks taken care of for you, you’ll have a lot more time to devote to more lucrative endeavors.
#3: It Needn’t Impact Your Relationship with Customers
As mentioned above, two different types of invoice financing exist. The services offered by financiers belonging to the different schools will vary. Factoring financiers will take over the management and collection of your debts, which means that they’ll be required to deal with your customers. However, if you’re reluctant to entrust your company reputation to a third party, then discounting financiers means that you don’t have to. This flexibility means that you can choose a service that’s perfect for you.
#4: It May Be Able to Save You Money
The guarantee of prompt payment has many advantages aside from the obvious ones. One of these is that it allows you to pass on this guarantee to your suppliers and peers. If you can assure them that they’ll receive any payments upfront, many business contacts are willing to offer discounts in exchange for hard cash in their hand.
#5: It’s Flexible
One of the most convenient aspects of invoice financing is that your access to funds will grow alongside your business. Unlike loans or other agreements, there is no need to renegotiate amounts as time passes. Rather, as your sales turnover expands, so does your funding line, saving time, money, and effort on the part of all who are involved.