03 Dec Does Invoice Financing Utilize all Outstanding Invoices
When a company has negotiated longer payment terms it really places the seller in a precarious position. The seller does not have access to the revenue from the sale until the invoice is paid. They cannot use the revenue to fund ongoing operations expenses and the purchase of raw materials until the invoices are paid. Many companies will utilize invoice financing as a solution to this problem. They gain access to the cash in advance of actual payment; however there is a cost to this action.
Does Invoice Financing Utilize all Outstanding Invoices
Not all invoices will qualify for invoice financing terms and the invoice finance company may decide to only fund the invoices that are outstanding to a level of 80% or even less. There are a few situations where 100% will be available and many that are even lower than 80%. Some invoices will not qualify at all.
For example very small invoices may be excluded simply because the administrative costs to track them can be too costly. Also invoices due from the public are usually excluded. Companies that are viewed as a credit risk based on their own business operations might also be excluded or at the very least a much lower percentage of the outstanding invoice will be included.
As sales are negotiated, terms and conditions must be carefully considered. Most buyers want as long as possible to pay for whatever services or products they are purchasing. Long terms mean no actual cash flow and this is where invoice financing can step in. However if the payment terms are very long, an invoice financier may decide to exclude these invoices. Then there is the cost to the seller to carry these invoice financing loans. The longer term will incur higher interest costs that must be paid when the invoice is finally paid in addition to any fixed charges.
Can Invoices to Overseas Companies be Included
In many situations these invoices will be excluded due to the difficulty in legally collecting any overdue invoice. A company with a high international clientele may find that this situation is very difficult to manage and will need to seek some other kind of financing solution for their operations activity etc.
Invoice tracking and credit control usually remains with the business. Regular reports are often required to provide a status on all collections, overdue invoices and invoices paid. The invoice financing company may also request reviews of all invoices and credit assessments of customer ability to meet their obligations. There will be ongoing assessment of credit control, the sales ledger administration and the ability of the client to manage overall cash flow.
In summary, the preferred clients of invoice financing companies are those with large customers and large invoices in domestic markets. Good credit ratings for the client as well as their customers are also a must to ensure maximum advance of funding against all outstanding invoices. Call or request a contact for more information about potential invoice financing solutions for your company.