Small business owners worry about cash flow all the time. In fact, studies show that 60% of small business owners stress about cash flow each month. There are different reasons why companies face issues with cash flow shortages: low profits, high overhead expenses, quick business expansion, poor financial planning, late customer payments, and the list goes on.
But one of the main reasons why small businesses encounter cash flow issues because of late customer payments. If your customers don’t pay their bills on time, it can put a serious dent on your cash flow. A research conducted by Fundbox discovered that 64% of small business owners regularly wait for late payments to come in. Fortunately, invoice financing lets you address cash flow problems by putting your pending invoices to work for your business.
What is Invoice Financing?
Invoice financing allows business owners to sell their pending invoices to third-party companies (lenders). Using your invoices is a fast and easy way to access additional working capital. The lenders will give you 80% to 90% of the total invoice value on the spot, while the remaining percentage (minus a small transaction fee) will be given once your customers pay their invoices.
It’s important to remember that the most suitable financing option for your company depends on your current financial situation. Invoice financing is suitable for situations such as filling cash flow gaps, pay for day-to-day operations, and more. It’s also perfect for small business owners seeking alternative financing options.
If you’re looking to apply for invoice financing, here are five things you should know about it:
- You’ll be able to have a continuous flow of cash.
In the business industry, they say that “cash is king” and it’s definitely true. If you don’t have enough cash, your business will die. Sadly, the amount of cash coming into the business does not match well with the cash that’s coming out. Simply put, business expenses recur regularly while cash inflows are variable. This combination can put pressure on your bank balances.
Invoice financing allows you to make better financial management decisions. By putting your invoices to work, you’ll be able to match incoming cash with your daily expenses. Every time invoices come in, you can “sell” them to third-party companies in exchange for immediate funding.
- You borrow against your own money.
When cash is running low, the first thing that comes to mind is to apply for a small business loan. But as a small business owner, taking on debt should not be taken lightly. It doesn’t make sense to get a loan if you’re already in a cash pinch. With invoice financing, you won’t have to borrow money to access working capital.
Invoice financing lets you borrow money against your unpaid invoices. This means that the money you’re getting is yours to begin with. You also get to select which outstanding invoices you want to finance. Lenders will deposit the money into your bank account within 24 to 48 hours and you’ll have enough time to repay the advance. If you’re not keen on taking on long-term debt, invoice financing is the way to go.
- You can easily access your money.
It’s definitely no secret that applying for small business loans from traditional lenders take so much time and effort. Plus, there’s a huge chance you’ll be denied the loan. To increase your chances of approval, you need to demonstrate a solid financial and business history, have a high credit rating and should be able to provide collateral. Most traditional lenders set the bar so high that small business owners and startup companies fail to comply with their qualifications.
With invoice financing, you don’t have to go through the hassle of applying for a traditional business loan. The invoice financing process is streamlined so you’ll be able to advance cash from your unpaid invoices in an easier, quicker, and more convenient method.
- You can get funded within 24 hours.
Unlike traditional bank loans that require weeks of processing, you can easily secure cash with invoice financing. This means you don’t have to wait for weeks to process your application. You can access your money as fast as 24 to 48 hours after approval. In this way, you’ll have cash on hand to cover business expenses.
