If you are a business owner, you must be aware about the different ways in which you can finance your business. However, it is important to understand that there are non traditional ways of funding a business which can help your business grow. If you are a business 2 business company, invoice financing will help your business use invoices of the company and exchange the same for a lump sum amount which is as high as 90% of the value of the invoice.
When the consumer pays the amount, you will receive the balance value of the invoice minus the fees charged by the factoring company. These invoices will act as a collateral for your loan and it will allow you to make the short term payments in due time. The borrowing fees will be lower than the processing fees and interest charged by a traditional banker. It is important to understand how factoring works.
How it works?
Invoice factoring is considered as one of the top fast funding options for a number of reasons. Depending on the amount of invoices you hold, the funding will be available to you. If you have invoices worth $200,000, you can get access to funds amounting to $160,000. This means you get quick access to funds based on the amount of invoices you hold. However, it is important to remember that the invoices should be from creditworthy clients. The factoring company will verify the same before accepting them. By creditworthy clients, it means that the invoices should be paid over time and should not turn into a bad debt.
Invoice financing is a favorite for small business owners who want quick access to loans which means funding that is available within 24 hours in certain cases. The application is hassle free and very easy because it is not technically a loan and is considered as a service. All you need to do is approach a reliable factoring company and use the invoices to get a loan against the same. Since there is no underwriting, the funds will be transferred to you at the earliest. However, you need to ensure that the clients are reliable and will make the payment in due time. The process of invoice collection will be managed by the factoring company and you need to keep in mind that when you outsource invoice collection, it might affect your relationships with the clients.
Is it meant for you?
When it comes to invoice factoring, even a small startup can benefit from the same. It is best to choose spot factoring so that you get funds as and when you need to instead of planning in advance and then using the funds. The best thing about invoice factoring is that the factoring company will not ask you where you want to use funds or how you should use the funds. It is an ideal option if you can rely on the customers that they will pay you whatever they owe you.