Invoice Financing: A Great Option for Small Businesses to Get Cash

 

Introduction

If you've ever been hit with a flood of unpaid invoices, you know the challenge of waiting for payment. However, invoice financing is a great option for small businesses to get cash. Learn about this financing method and why it can be beneficial for your business

What is invoice financing?

Invoice financing is a form of credit that allows businesses to access cash before they get paid by their customers. Invoice financing is not a loan, but rather an alternative to bank loans. It’s also a short-term loan—an invoice has to be paid off within 90 days.

The lender will buy the invoice from your company, which means you still have to pay the supplier or customer. However, as soon as you make your first payment on that invoice, you get back the money that was used by the lender and keep 100% of what you earn from it until then (the interest rate varies based on factors like creditworthiness). In effect, it's like someone giving you money up front so that they can collect interest while they wait for their payment later on.

Who benefits from invoice financing?

Invoice financing is a great option for small businesses in need of cash.

·         Small businesses. With an average credit score of 645, most small businesses are likely to be able to get approved for an invoice factoring loan. If you've been turned down by your bank or other lenders because you have bad credit, this can be a great option for you.

·         New businesses. The process of acquiring funding is often long and tedious, especially if it's the first time that a business has applied for funding from traditional sources like banks and venture capitalists (VCs). By that point though, there may not be enough time left in the day - or money in their pockets - to make it happen anyway! This can make invoices very appealing: not only do they provide immediate access to capital but they also offer automatic repayment terms so there's no need worry about paying back any loans before they come due unless they're already paid off at which point it's time celebrate!

How does it work?

Invoice financing is a short-term loan that helps businesses pay their suppliers. To get the money, you borrow from a third party lender who pays you upfront for your invoices. When your invoices are paid by the client, your lender gets paid back. This can be done in two ways:

·         The lender can charge interest on top of the funds they're providing to you—in other words, taking advantage of your cash flow

·         Or they may take security over your invoices by using them as collateral

How does invoice financing differ from bank loans?

Invoice financing is a short-term loan. As such, it allows businesses to access cash quickly without having to wait for a bank’s approval process or risk falling behind on payments.

Bank loans are long-term loans—you may have heard of the term amortization, which is how you pay back the loan over time. While this can be helpful for larger businesses that need funds for large projects or equipment purchases that will benefit them down the road (think: buying a new building or machinery), smaller companies don’t generally have those needs and may not even want to take out such big loans in the first place.

Conclusion

Invoice financing is a great option for small businesses that need cash in a hurry. It’s also an excellent alternative to traditional bank loans because it offers lower rates and can be used for any number of reasons. If you’re interested in learning more about this type of financing, contact us today!