Invoice financing can be a quick and easy way to get the working capital you need for a growing business. That’s why online invoicing services pop up everywhere, promising to help business owners gain cash-flow fast and easy. They say they’ll find someone who will buy your invoices or act as a buyer themselves. What they don’t tell you are the top five benefits of invoice financing that might make all the difference in how you do business.
Best benefits of invoice financing:
1. No financials required
An invoice advance loan can be an excellent option for businesses that need cash but don’t have time to wait for invoice payments. With invoice financing, you can get up to 80% of outstanding invoices 24 hours after submission, with the remaining 20% paid when the invoice is collected from your customer.
You can use the funds from it to cover payroll, buy inventory and supplies, or even expand your business. The payroll process is easier with a free paystub generator too.
You only pay when you use invoice financing, so there’s no monthly cost if you don’t need it. There are also no financial statements required for approval, and there are no fixed monthly payments.
2. Quick access to cash
The main benefit of invoice financing is that it allows you to get quick access to cash that would otherwise have been tied up for weeks or even months if you were waiting for clients to pay their invoices. This type of financing is popular among businesses with slow-paying clients or who need additional capital fast.
There are two main types of invoice financing: recourse and nonrecourse. Each type has different advantages, so it’s essential to understand the differences before deciding.
3. Recourse vs nonrecourse invoice financing benefits
With recourse invoice financing, your business sells its outstanding invoices to a factoring company for a percentage of its value. The factor advances up to 90% of the invoices’ value immediately, then collects payment from your clients on your behalf. Once they have recovered the total amount from your clients, they pay you the remaining balance — minus fees — less than 24 hours after collection.
On the other hand, nonrecourse invoice financing is similar to recourse invoice financing, but with one big exception: it doesn’t require collateral. If your customers default on their payments, the factor will cover any losses and still pay you for the invoices you sold to them.
4. No asset ownership
Invoice financing can benefit your business in many ways. Perhaps the most significant benefit of invoice financing is that it is a non-asset-based form of finance. That means your company does not have to use its assets as collateral for a loan.
This might sound like an obvious point, but it’s pretty significant. Many other forms of finance require you to put up assets as collateral for the loan. If you fail to repay the lender, they can take ownership of the asset and sell it to recover their money. You don’t have to worry about your loan being secured against anything valuable with invoice financing.
5. Easy terms and conditions
Invoice financing is one of the simplest forms of financing that a business can get today. The terms and conditions are straightforward to understand.
Unlike other forms of financing, this is a fast process and does not require a lot of paperwork. You only offer your invoices to the lender as collateral for the loan. If you have defaulted in payments or have made late payments, it does not affect your chances of being approved for invoice financing.
If you are self-employed or have a business operating for more than two years, you qualify for invoice financing. You should also bring in more than $10,000 per month in gross sales.
There are no other restrictions on the type of industry you operate in or the type of goods or services that you sell. Invoice Financing is available to businesses from diverse industries such as the IT sector, manufacturing sector, logistics sector, service sector, etc.
6. No hidden costs
Invoice financing is a transparent and straightforward way to grow your business. It’s just a matter of signing up with an invoice financing company that offers fair terms and transparent pricing.
One of the main reasons it is crucial to choose an invoice funding company with no hidden fees is that it can save you money. Some invoice financing companies hide fees in their contracts, which means you might be paying more than you think.
As a business owner, you must know what you are getting into when entering into a business relationship with another company. That way, you can avoid surprises and focus on growing your business.
When you first sign up with an invoice financing company, they will disclose all the fees they charge and explain how they calculate those fees. If something goes wrong down the road — for example, if there are additional costs associated with collecting on an unpaid invoice — then the finance company should inform you as soon as possible about what’s going on and explain why there are additional costs involved.
Conclusion on invoice financing benefits
Interested in knowing if invoice financing could help you? With banking institutions offering less capital to small businesses and loans with high-interest rates becoming almost impossible to secure, invoice financing may be a solution for even the smallest companies. Reading through the top five benefits of invoice financing above is helpful to understand whether they apply to your business and others.