Invoice financing is a great solution between waiting on payments and investing further. A financing company advances you some amount of money. When your client pays the original invoice, you get the remainder payment (if the total invoice is more than what you advanced).
Table of Contents
Forget going into long-term debt
Loans are the traditional option of getting funds, and many banks and lenders have various programs and incentives for startups and small business owners.
But, it may not be the best business strategy in 2022. Small businesses in particular should be more flexible in navigating the post-pandemic financial landscape. Business loans are, at the end of the day, just another form of debt. It will saddle your operations, slow your growth, and impact your bottom line for at least a year.
Invoice financing is much less of a burden on your balance sheet. They are short-term, so there’s no need to worry about staying indebted over a significant period of time. Your business is free to move on much sooner.
Moreover, you don’t clear the debt until it is convenient. Invoice financing is typically repaid only after the original invoice is completely settled. Since your repayment isn’t constricted to a fixed term, your cash flow is under less threat.
Easier cash flow management
Another benefit of invoice financing, which is directly related to the previous point, is that it makes managing your company’s cash flow much easier. Invoices can get annoying when the expected funds are tied up for a long time. When you can invoice them quickly, your immediate cash flow is instantly improved.
Moreover, you don’t have to bother with all the typical paperwork. Contact your invoice finance provider online and manage the whole process from your office or other place of business. Figure out how much funding would help your current cash flow, flag the appropriate invoices to fund, and complete the application immediately.
Get faster access to your funds
If you need a quick cash influx, consider utilizing an invoice finance service as a low-risk short-term funding boost. These are also known as debtors finance and receivables finance. In essence, what they do is let you access the funds from your invoices that haven’t been paid yet.
If your accounting is done online and you use invoicing software, you can get your funds within a day or two. Just log in and choose the invoices you want to finance. This saves you tons of time which you can instead invest in managing your operations and growing your business.
Less risk with big projects
Big contracts can mean big risk for small businesses. They entail high costs and the payment is typically very slow in coming, especially if the partner is a large corporate entity. In fact, common payment windows are anywhere from a month to over 60 days.
When you use an invoice financing service, you can receive your due cash right away. That way, you avoid stretching your budget too thin and incurring losses. This is especially important for newly developing businesses which are more likely to face unexpected expenses.
With short-term invoice financing, you can take on a large, lucrative project and not worry about being blindsided by some administrative or operational hit to the company budget.
Bonus: Choosing the right service provider
If you don’t already have a reliable invoice finance service, you should take some precautions in choosing one. It isn’t quite a regulated industry yet. Here are the key things to consider:
- Are their fees transparent and easy to understand? Complicated fee structures or lots of things to pay for can be a way to hide unnecessarily high costs.
- What kind of finance model do they offer? Look into their lines of credit, invoice factoring, and specific payment plans. These things determine how much money you can get from the invoices and when you will need to repay them.
- Who carries the risk in case the original invoice isn’t paid? Will the invoice financing company chase after your debtor? Will you need a joint account between the three of you?
- Can you pick which invoices to use the service for, or does the financing company have to control all of them?
Invoice financing services come with some fees, but they’re worth the investment. They are a much more flexible mode than traditional loans. You get your funds faster and it’s an easy way to bridge short-term gaps in your cash flow.
Read more: Five Smart Steps for Buying a Business