What is Invoice Financing and is it the Right Choice for My Business?

Invoice financing may be an option for you if your business is in a cash crunch, yet a surprising number of people don’t know much about this financing option. There are some cases when invoice financing is a much better solution than traditional lending and should be considered if you have immediate needs. Let’s learn more about what invoice financing is along with its benefits. We’ll then share a few tips for determining whether or not invoice financing is the right choice for your business.

What Is Invoice Financing?

Invoice financing is when you borrow money against a customer invoice. You may sell the collection rights to the invoice altogether, or you may borrow money from the invoice financing firm while promising to repay the loan as the client pays you. Invoice financing is also called accounts receivable financing and A/R financing.

Invoice factoring is a form of invoice financing. With invoice factoring, you’re selling your invoices to the factoring company. You’ll sign a contract giving them the rights to pursue the money you’re owed. With invoice financing, you receive the loan from the invoice financing firm, but your clients continue to only deal with you. One of the benefits of invoice financing is that your clients don’t know that you’re experiencing revenue problems, though that’s not the only benefit.

The Benefits of Invoice Financing

Invoice financing doesn’t depend on your credit. Instead, it depends on the creditworthiness of your customers. That means a business on the edge of bankruptcy will pay the same fee for invoice financing as a business with good credit.

Invoice financing can give you capital that is currently locked up in payables so you can pay your own bills. Then your own cash flow isn’t crimped by big businesses taking their time to pay what they owe you.

You have greater flexibility with invoice financing than other options. For example, you can choose which invoices to borrow against. And you can choose when you borrow against the invoice’s value. This gives you more control over your cash flow.

Your personal and business credit isn’t affected if the customer doesn’t pay their bills. Furthermore, the rates you’re charged are not affected by your credit score or bill payment history.

You don’t have to mortgage your home or business to raise much needed money. And invoice financing is an option if you have slow-paying clients but no other assets. For example, invoice financing is an option for marketing firms, law firms and consultants who only sell their services.

What You Need to Know Before You Apply

With invoice financing, you can get anywhere from 50 to 95 percent of the invoice amount. This percentage will depend on how old the invoice is, the creditworthiness of the customer and the general odds of the invoice being paid in part or in full. However, costs and terms of invoice financing vary between service providers. For example, lenders like Advanced Point Capital offer a variety of options. They generally require you to have a set amount a month in accounts receivable, however, they might make an exception. So, don’t hesitate to try even if you don’t think your business meets the minimal requirements.

Conclusion

Invoice financing is an under-utilized financial option for small and mid-sized businesses, and It has a number of benefits that you can’t afford to ignore. Make sure that you consider it and see if it would be the best option for your situation.

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