Often small business owners face the difficulty of extending payment terms of 30 to 60 days or more to clients and then experiencing problems with cash flow. An effective method of resolving this dilemma is invoice financing, also known as invoice discounting or accounts receivable financing. Here are some facts about this method of funding to help you determine whether it is right for your company.
Invoice Financing Basics
When your application is approved for invoice financing, you receive a cash advance based on your unpaid accounts receivable value. The invoices become collateral for the loan, and you are still responsible for collecting the funds that are owed to you from your clients. In contrast, invoice factoring involves the sale of your invoices to a factoring company, and the lender assumes collection responsibilities.
The Process of Invoice Financing
When you work with an invoice financing company, you receive up to 90 percent of the value of your unpaid invoices as an advance. You are charged a weekly fee of a percentage of the value of the invoices until your clients pay their bills and you repay the loan.
Applying for Invoice Financing
Numerous online lenders offer the option of invoice financing. When you apply, you will need to provide essential business information, business, and personal credit scores, company financial statements and bank statements, and copies of the accounts receivable you intend to use for financing.
The Advantages of Invoice Financing
Invoice financing is an ideal funding solution for business-to-business companies experiencing emergencies or cash flow difficulties. The application process is easy and you can swiftly obtain needed working capital. Since no other collateral is required apart from your unpaid accounts receivable, you can be approved for funding even if your company is a startup or has a low credit score.
For more advice on funding your small business through invoice financing, get in touch with Scarlan Capital Group.