Invoice financing means exactly what the name states. It is to do with borrowing money against the amount due from customers. It is a type of business credit that is easier to obtain as compared to other types of credits. It is also useful when clients or customers have delayed the payment of their invoice.
This is a good option in some cases, however, it does come at a cost since the lender will charge a fee, but at the same time, it is a good bailout for a business having cash flow problems to pay their dues to either employees or suppliers.
This article describes the trade finance facility available to businesses of many different industries.
The lender is also benefited from this method of lending money. Since they are lending against an invoice they can always use it as collateral in the case where the business fails to repay the loan. There may be a risk factor involved however it is pretty low. The lender will usually charge a small percentage of the invoice amount hence also benefiting from the deal.
Popular Invoice Financing Solutions
The term invoice financing applies to several products that allow one to finance accounts receivable. Invoice factoring is one of the most popular solutions for financing invoice and is offered by many; however, there are others available too.
The way invoice factoring works is that companies sell their accounts receivable to an invoice financing company. They get the invoice payment immediately in exchange. The company can use these funds for several purposes like to launch a new project, employee salary, but more supplies and other company expenses.
There are many benefits of opting for invoice financing companies one of the best beings that it is an instant solution. The lending firm usually will not demand a great amount of security, instead, the invoices will suffice. For new businesses who are struggling with funds on a monthly basis. The percentage charged by the lending firm is usually not very high.
- Invoice financing may sound complicated, but the fact of the matter is that it is very straightforward.
- It can help to release the cash flow stuck up due to unpaid invoices.
- The process to receive the funds after submitting the application is quite simple and does not take very long too.
- The approval process is quite fast and there is a very small amount of paperwork involved.
- It is optimal for B2B businesses since it helps maintain a high level of transparency.
- Several industries take advantage of this like, retail, real estate, manufacturing, healthcare, agriculture, legal services, agriculture, etc.
- It is flexible and innovative and has no hidden fees.
- It is good protection when clients have delayed the invoice payment or failed to pay altogether.
- The application process for this very fast and easy.
The typical application process at invoice financing companies includes applying for the funding. There is usually a fee for making such an application neither is there likely to be a fee for set up. In most cases, the application process will involve producing some security in return. The security in most cases would be property. However, in this case, there is no such security necessary.
If an invoice is held up due to some to some of the other problems, this is the optimal solution since it allows the business to access up to 90% of their cash up front, without having to worry about securing payment for the invoice.
The lending firms will usually allow a company to upload their invoices and select the ones that require funding. There is no charge for the debtor in this case. The lending firm will need to go through the process of checking the credit rating and verifying the invoices on an individual basis.