How Invoice Financing Can Boost Your Business Liquidity
Can’t pay the bills while waiting 30/60/90 days for your customers to pay their invoices?
Only 70% of small businesses have 4 months of cash reserves on hand. Cash flow issues can quickly become a big problem for profitable companies.
The issue is simple:
You’ve worked hard, delivered the products and services, and sent out the invoices. But you still can’t pay your own bills, your employees, and your suppliers because your customers still haven’t paid yet.
Enter invoice financing.
This financial solution has become a game-changer for businesses looking to tap into their cash tied up in unpaid invoices.
Contents
In this post, we’ll cover:
- What Is Invoice Financing & How Does It Work?
- The Real Benefits You Get From Invoice Financing
- Who Should (And Shouldn’t) Use Invoice Financing
- How To Choose The Right Invoice Financing Partner
What Is Invoice Financing & How Does It Work?
Invoice financing (also called accounts receivable financing) is a way to get fast cash by using your unpaid invoices as collateral.
Here’s the process:
You sell your products or services and invoice your customers as usual. Instead of waiting weeks or months to be paid, you take those unpaid invoices to an invoice financing company.
The financing company advances you a percentage of the invoice value — typically 80% to 90% of what the customer owes you. You receive the funds within 24 to 48 hours.
When the customer pays the invoice, the financing company takes their fee and pays out the remaining balance to you.
Neat, right?
The best part? This isn’t a loan, you’re not getting into debt. You’re essentially selling your invoices at a discount for immediate cash.
The Real Benefits You Get From Invoice Financing
But why is invoice financing becoming so popular?
The invoice factoring market is projected to reach $12.74 billion by 2034. And that growth isn’t happening by accident. Here’s the real benefits of this financing solution:
Immediate Cash Flow Relief
The biggest benefit is also the obvious one, you get paid immediately. 45% of small business owners in the US forego their own paychecks to make up for the shortage of cash flow. Invoice financing solves that issue quickly.
Instead of losing sleep over how you’ll make payroll or pay your suppliers, you get the cash to keep the operation running.
No Credit Score Needed
Unlike traditional bank loans, invoice financing isn’t based on your personal or business credit score. The invoice financing company is more concerned with the ability of your customers to pay.
This means if your credit score is less than stellar, you can still qualify. They are buying your invoices based on the creditworthiness of your customers, not yours.
Flexible Funding That Scales With Your Business
Invoice financing can scale with your sales. The more invoices you have, the more funding available for your business.
That is so different from traditional bank loans, which just offer a fixed amount to be paid back over time. Smart business owners that explore financing options for small businesses quickly realize that invoice financing grows as your business grows, making it perfect for growing operations.
Instant Approval Process
Forget waiting weeks for loan approval. Most invoice financing companies can approve your application and fund your account within 24 to 48 hours.
You submit the invoices, they verify and you get paid. It really is that simple.
Who Should Use Invoice Financing
Invoice financing works best for businesses with:
- B2B customers
- Payment terms of 30 days or longer
- Immediate cash flow needs
It’s great if you can’t qualify for traditional bank loans or want to expand without getting into debt.
Invoice financing is less ideal for businesses with:
- Cash customers
- Customers with poor credit
- Very short payment terms
The key to understanding if invoice financing is right for you is that invoice financing is a solution for cash flow timing issues and not profitability issues.
Types Of Invoice Financing
Invoice Factoring: You sell the invoices outright. The company gets involved with collections but the customer is aware of this.
Invoice Discounting: You maintain control and make the collections. Collection efforts remain private but you do the work.
Selective Financing: Choose invoices to finance. More flexibility but potentially higher fees.
Choosing The Right Partner
The following things should matter when it comes to selecting an invoice financing company:
- Transparent fees — Understand exactly what you’re paying. Fees are typically 1% to 5% per month.
- Industry experience — Experience with your specific industry results in better terms and service.
- Good customer service — You’ll be working with them a lot so responsiveness matters.
- Flexible terms — Avoid long term contracts with high early termination fees. Best partners will adapt to your needs.
Is Invoice Financing Right For Your Business?
Invoice financing can be a powerful tool to improve business liquidity. But like any tool, it’s not a perfect solution to every cash flow problem.
Invoice financing is great to consider if you have good customers who pay their bills and you’re just tired of waiting for the payment. Service businesses, manufacturers, and distributors work especially well with invoice financing since these types of businesses have longer payment terms.
The key is to find the right financing partner that understands your business and offers fair and transparent terms.
Wrapping Things Up
Invoice financing offers a practical solution to one of the biggest challenges for small businesses. Cash flow timing problems can literally kill even profitable companies.
Instead of waiting 30/60/90 days for your customers to pay, you can have immediate access to the money you have already earned.
60% of small businesses struggle with cash flow management. As a result, solutions like invoice financing are becoming an essential tool for business success and survival.
The invoice financing market will continue to grow as more people discover how it works. Invoice financing provides immediate liquidity without creating debt, it scales with the growth of your business, and you don’t need to have perfect credit scores.
If cash flow timing is holding your business back from reaching its full potential, invoice financing could be the answer you’re looking for. Just make sure to choose the right partner and understand all the terms upfront before you start.
Cash flow problems don’t have to be permanent stumbling blocks for your business. Sometimes the solution is as simple as being paid faster for work you have already done.
