Businesses may encounter situations where they need cash, not because of poor financial management or lack of sales, but due to customers who pay late.
In order to maintain a healthy cash flow, businesses rely on timely payments. This money is necessary for running and expanding the business, paying bills, rents, employee salaries, maintenance fees and other expenses.
Cash flow disruptions can significantly impact a business’s day to day operations. This is where the concept of invoice financing comes into play.
Invoice Financing is a financing method where a company borrows money using its unpaid invoice as security. This is typically used by companies who rely on credit-based sales, where products or services are provided first, and an invoice is issued to the customer for payment within a stipulated time frame.
However, some customers may not be able to settle their invoices on time, which can cause cash-flow problems for the company. In such cases, a company can obtain a loan from banks or other financial institutions, using their unpaid invoices as collateral.
Also known as accounts receivable financing, invoice financing is a short term loan. Lenders typically provide a loan amounting to 75%-80% of the unpaid invoices for the credit period. When these invoices are eventually paid, the borrower will have to repay their invoice financing loan and its related interest. This means that an invoice amount of $10,000 for 90 days could receiving financing of up to $8,000 on day 1. And when the full $10,000 is finally paid on due date the end buyer, it will settle the $8,000 loan extended and its related interest and fees. Whatever is remaining is returned to the borrower.
Alternatively, there is a similar concept called invoice factoring, where the unpaid invoices are bought over by a new company (usually at a discounted rate) and they will be responsible for pursuing the customers for payment.
Invoice financing is generally easier to obtain than corporate loans, and can help ease the financial pressure caused by unpaid invoices. With this financing method, you’ll be able to receive cash for these invoices sooner rather than later.
Here are some key ways businesses can benefit from invoice financing.
Invoice financing offers a fast and efficient solution for businesses facing cash shortages due to unpaid invoices. This can help cover pressing expenses, ensuring the continuity of day-to-day operations. In emergency scenarios, such as facing eviction due to unpaid rent, invoice financing can provide the necessary funds to keep your business afloat.
Unlike traditional loans, invoice financing does not add to your company's debt. Instead, it transforms your accounts receivable into working capital. This means you're not borrowing new money; rather, you're receiving the funds you're already owed faster, which does not increase your liabilities.
Chasing after overdue payments can be time-consuming and stressful. Invoice financing allows you to shift your focus from debt collection to business expansion. With improved cash flow, you can explore new avenues for growth, like acquiring new customers, marketing, upgrading equipment, or investing in new assets.
Invoice financing typically doesn't require fixed-term repayments. The repayment schedule aligns with when your customers pay their invoices. Furthermore, this financing method usually doesn't late interest charges, eliminating the concern of accruing additional debt or expenses.
The stress of dealing with non-paying clients can deter businesses from taking on larger projects. However, invoice financing can alleviate these fears by providing an option to receive payment in a timely manner, independent of the client's payment schedule. This can instil a sense of security and confidence in pursuing new business opportunities.
Running a business is never easy as there are so many aspects to administer. Late invoice payments add to the financial stress and strain on a business. Fortunately with invoice financing, you can keep this stress to a minimum and obtain what you’re owed so that your company's operations are not disrupted.
At Lendingpot, we’ve got you covered; with a single application you can gain access to multiple invoice financing offers from over 45 lending partners on our platform. Even more advantageous is the fact that with our unique system, you’ll be able to compare the multiple offers made by our partners for the most competitive rates and repayment terms.
Enjoy interest rates as low as 6% p.a. and factoring fees from as little as 0.25%. Additionally, you’ll be able to obtain financing of up to 90% of your invoice value.
Contact us today to learn more about Lendingpot, and how we can help you achieve your financial goals. Alternatively, you can browse through other financing options in our business loan series. We’re always ready to assist you in creating a more conducive financial environment for your company and help revolutionise the way you manage your working capital. Click here to get access to funds today.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.