Contrary to a traditional loan which is usually carried on the balance sheet and services with monthly charges, invoice financing is quite different.
Though cash flow management is essential in the success of a business, maintaining steady cash flow is always a Herculean task, especially to businesses that trade with clients on credit terms. Invoice financing or factoring, however, offers a reprieve to businesses as it bridges the time from which you make a sale and that when your invoice is settled.
We are going to share with you nine crucial reasons you need to incorporate invoice financing into your business.
Get Immediate Cash without Needing a Loan
Contrary to a traditional loan which is usually carried on the balance sheet and services with monthly charges, invoice financing is quite different. It speeds up the money access from debtors, without needing to commit your business to any financial contract.
Only Make Payment When your Invoice is Settled
Invoice financing can never be settled until the original invoices from your debtors are cleared.
The good thing about this form of financing is that it’s not tied to any interest, and nothing is paid to the funder, as they only need to collect money from your clients once they settle their invoices.
Spur Business Growth
For businesses to grow, they need a steady flow of cash, and there’re numerous ways that factoring can help your business grow.
For starters, it streamlines your overall cash flow, which will promote rapid growth of your business, especially considering that Entrepreneur asserts that 82% of businesses usually close due to cash flow issues.
Secondly, having a steady cash flow will allow your business to extend lines of credit to loyal customers.
More importantly, however, it will let your business make prompt payment to suppliers, and, consequently, avoid supply chain constraints.
With invoice factoring, there’s no restriction to what amount you want and what you want to do with the funding.
Ordinarily, this type of funding will give you complete control of the cash, and you can access it wherever you need it.
And, given that this form of credit is usually settled in a month or two, and not years, businesses can access the funds repeatedly like a revolving line of credit.
Apply for Invoice in Hours
One of the other reasons that makes invoice financing so compelling is that business owners don’t need to leave their offices or store to apply for this type of funding.
In most cases, the application is made through an online process and approval is near-instant.
And, unlike a traditional bank loan, there’s minimal paperwork that is required, and money can be in the business account within hours of application.
Feel Confident About Big Projects
Invoice factoring guarantees flow of cash in a business and as such, entrepreneurs are always confident that they can handle large and lucrative projects without stretching their funds too thin because they can access their invoices immediately.
Reduce Risk of Late Payment and Bad Debts
Debts and late payments can cripple a business.
And, while you can take legal action against debtors who fail to meet their financial obligations, this approach is resource-intensive, especially the cost of hiring lawyers.
You save yourself from all these shenanigans through an invoice discounting.
Ordinarily, invoice financing companies usually do credit checks on your debtor and will often take insurance against non-payment, thus cushioning you against rogue customers.
Factoring is Affordable
Unlike other forms of business financing, invoice factoring is quite affordable.
For starters, you won’t pay an interest rate, but instead, you pay a factoring fee, a transaction fee based on the amount of invoices you factor.
Promotes Better Credit Control
The last reason why you would consider invoice factoring is that it unburdens you from credit control, and this helps to save your time and money.
And so, you can always be confident when accepting terms with your clients because you won’t need to wait for payment from them.