Invoice financing is a funding option not a lot of small business owners know about. Even though it’s not a conventional funding solution, it is a great option for many small businesses. This type of funding allows business owners to sell their pending accounts receivables to third party companies at a discount. Instead of waiting for 30, 60, 90 days, lenders will give you 80% to 90% of the total value of your outstanding receivables. Lenders will give you the remaining percentage, minus a transaction fee, once your clients pay their dues. Waiting for payments can put a dent in your cash flow. Invoice financing works best for companies that experience cash flow issues because of gaps in payment. In this way, you’ll have enough working capital to manage immediate expenses like payroll, supplies, and more.
How Invoice Financing Helps
If you have a lot of pending accounts payable and you need working capital to handle immediate expenses, you can finance your accounts receivables for immediate funding. Here are five reasons why this type of funding is best for your business.
1. Short-Term Funding Option
As mentioned, this type of funding works best as a short-term funding solution. It provides you with the working capital you need to address expenses without having to wait for months to get paid. Since lenders give you a lump sum upfront, invoice financing is a great solution for unexpected expenses. It’s also ideal for business owners who need working capital but don’t need a big loan. For more information, speak with SMB Compass’ financial experts today.
2. Lower the Risk of Late Payments
Late-paying customers are one of the main reasons why companies experience cash flow issues. If your customers fail to repay, you have the option to take them to court. However, taking legal action against your customers can be costly and lengthy. You’d have to hire lawyers to represent your company, spend time to file a case, so on and so forth. Invoice financing helps business owners avoid the hassles of chasing late-paying customers. Most lenders companies do credit checks on your customers before signing you up. Factoring companies know how to deal with customers who pay late or default on loans. Additionally, they also know how to recover the defaulted funds. With invoice financing, you’ll be able to receive the funds immediately so you can invest the money back in the business in order to sell more products, increase profits, and expand your business.
3. Strong Credit Rating and Business History is Not Required
It’s common knowledge that a great credit rating and a strong business history are needed to qualify for traditional loans. However, invoice financing is great for business owners who don’t have great credit or a long financial history. Factoring companies are more concerned with your customers’ credit standing and their capacity to pay their receivables. Check out SMB Compass’ to know more about funding with bad credit.
Qualifying small business loans from traditional lenders can be challenging for small business owners. This is because banks and other conventional lenders prefer to fund established companies rather than small businesses. Fortunately, even if you can’t access funding from banks, you’ll most likely qualify for invoice financing. Factoring companies can easily provide funding if needed, so if you need working capital to fulfill customer orders, it can give you immediate funding.
4. Fast and
You don’t need to be a seasoned entrepreneur to know that businesses need to have easy access to working capital to fund daily operations, such as paying suppliers, making payroll, and paying for overhead costs. However, companies that offer credit facilities to its customers may experience cash flow shortages, especially if there’s a long cash flow gap and if customers fail to pay on time.
According to the financial experts at SMB Compass, invoice financing can help bridge the gap between accounts payable and accounts receivables. Factoring companies can provide funding within 24 hours or within the week. On the other hand, traditional lenders can take weeks or months to approve a loan and some business owners can’t wait that long. Visit SMB Compass to know more tips and tricks to fast and simple funding.
Discover Invoice Financing for Your Small Business Today!
Invoice financing is ideal for businesses that need immediate funding and/or business owners that can’t qualify for traditional loans. As long as you process accounts payables, you can most likely qualify to finance outstanding accounts.