You may have already come across the term invoice financing and factoring. However, it just might be the case, like many other business owners, that these terms are not familiar with you.
Invoice factoring and financing are just one source of potential business funding, but they’re not a typical or conventional loan. They do have similarities to secured loans, given the fact that your unpaid and outstanding client invoices would secure your funding.
Both of these methods of funding let you borrow against the total value of your unpaid invoices so that you can reduce the dates from when an invoice is paid to when an invoice is due to be paid.
Invoice financing often proves to be a great option if you have outsourced invoice handling, or if you have an internal credit control system in place.
The invoice finance provider can offer you funds equaling a percentage of all your outstanding invoices. That rate is typically in the neighbourhood of 90 percent.
You stay responsible for getting payments from your clients, along with many other invoicing process aspects, so you consequently remain in overall control over the finances of your business. When invoices get paid, you get the balance that is owed.
You do need to factor in the amount which you borrowed, as well as applicable finance fees, every time you get payments on invoices.
If your company doesn’t currently have any in-house credit control and wants to leverage the power of invoice financing, then you should use factoring, which itself is a fully-featured financing solution.
The factoring provider you sign up with can handle every one of your company’s credit control processes. They’ll go after outstanding invoices and expedite the time involved in receiving due payments from your client base.
A number of businesses are resistant to the idea of handing over the credit control functions of their company to someone else, since it means surrendering control of one of the more central aspects of their day to day operations.
On the other hand, when this gets outsourced to a professional firm, any business can enjoy a streamlined invoicing process, which makes it possible to get payments quicker.
The Advantages Your Business Gets From Such Funding
Any company choosing to use invoice financing and factoring is going to enjoy numerous benefits. These benefits and advantages do vary depending on the actual size of the particular business.
What Starts-Ups Can Benefit
A start-up can use this kind of financing within just 12 months of operation to get access to funds in a period where other financing options just aren’t on the table yet.
Many other sources of funding require a full year of accounting to be filed before they consider providing financing.
What Mid-Sized Companies Can Do
This is a proven way to bridge gaps between the times you invoice your clients and when you receive their payments. That lets you unlock the funds you need for buying more stock or just expanding overall.
What Large Companies Get To Do
Invoice financing for a large company is a form of borrowing at a low-interest rate. The fees involved in this kind of funding are agreed to in advance, so you don’t have to stress out about interest accumulating.
The Invoice Finance Process
Invoice financing comes in three stages. They are Invoice, Notify, and Borrow.
- You start off by issuing a standard invoice to clients or customers.
- Secondly, you notify your lender the amount those invoices carry.
- Following this, you get to borrow the available funds.
When an invoice gets paid, you then get the balance remaining, minus an agreed fee, which is retained by the lender.
The choice of whether or not you should make use of invoice financing or factoring relies heavily on whether or not you already have any system in place for handling invoices.
If you do not have any system in place, then partnering up with a factoring provider can be of great assistance with your invoicing process.
When you do, your company stands to take significant advantage of invoice factoring.
Hopefully, this will help you increase the cash flow at your company and generate tremendous success.