Business-to-business companies often face difficulties with cash flow due to capital being tied up in their clients’ unpaid accounts receivable. A possible answer to this impediment is invoice financing. Here is some information that will help you assess its effectiveness in meeting your business’s funding needs.
Invoice Financing Basics
Invoice financing allows you to obtain a cash advance using unpaid invoices as collateral. You can get an advance of up to 90 percent of the value of the accounts receivable. After you receive payment from your customers, you pay back the advance plus fees to the lender.
Advantages of Invoice Financing
The application process for invoice financing is quick and easy; you can sometimes have the funds you need within 24 hours. Even if your company is new or your credit is not the best you can still qualify, because lenders are more concerned about the payment histories of your clients. No collateral other than the accounts receivable is needed. You will be able to obtain the working capital you need to cover the rent, pay your employees’ salaries, purchase equipment and inventory, and handle other expenses. Unlike invoice factoring, which involves selling your unpaid accounts receivable to a factoring company, with invoice financing you continue to handle interactions with your customers concerning payments.
Disadvantages of Invoice Financing
Only certain types of businesses offering clients payment terms can qualify for invoice financing. The fees can be higher than those for traditional loans. The specific amounts are dependent on how long it takes customers to pay bills.
Obtaining Invoice Financing
Invoice financing is most often attained through alternative online lenders and not through traditional banks. When you apply, be prepared to provide general details about your company, financial statements, bank statements, business and personal credit scores, and the specific invoices you plan to use as collateral for the advance.
For more advice on using invoice financing to help fund your business, contact Scarlan Capital Group.