20 Nov What are the Advantages of Invoice Financing
Many small business owners are frustrated with slow payment on outstanding invoices from their customers. More and more they are turning to Invoice financing to help them manage their cash flow and fund operations. In case you are wondering what are the advantages of invoice financing, we will cover that in a moment. But first, just a few words on what invoice financing actually is.
What is Invoice Financing?
Business owners regularly have to wait for a month or sometimes longer for customers to pay for goods and services received. In most cases it is written into the contract that they have 30, 60 or even 90 days to pay. This is a long time for a small business to wait to be paid. In the mean time they have to continue to fund operations, buy raw material etc to continue to generate more sales. Invoice financing allows business owners to borrow against these outstanding invoices and use the funds to support their ongoing business activities. When the invoices are finally paid, the proceeds are used to pay back the loan plus any financing fees as per the terms of the loan.
What are the Advantages of Invoice Financing?
By now you may have already figured out one of the advantages of invoice financing. As a business owner, your company gains access to sales revenue much more quickly than you would if your business had to wait until the invoice was finally paid.
Another advantage for the business owner is in negotiations. Large companies like to negotiate longer payment terms. This puts a lot of pressure on the small business owner. They know that if they do not agree, they could lose the business to a competitor who is willing to accept these long payment terms. If they do agree, they also know that they will have to come up with some method to finance ongoing operations until they are paid. With invoice financing available, it can remove some of this pressure and place the small business owner in a better negotiating position with the buyer. Terms can be included which reflect that invoice financing is available and being used.
In all businesses, cash flow is all important. If you do not have sufficient cash to pay employees, to pay suppliers etc, severe cutbacks can result to the point of jeopardizing the survival of the company. Small businesses are particularly prone to being sensitive to cash flow issues. Appropriate use of invoice financing can smooth out cash flow and remove some of the cash flow valleys that inevitably occur throughout the year.
How Much Money is Available and what are the Costs?
Every company is different. They have a variety of products and services. They have various levels of uncollected invoices, not to mention the longer term payment invoices. Credit worthiness can also be a factor. The best approach is to give us a call to discuss your specific situation. The best invoice financing solution can then be worked out for your firm.