Invoice Financing – What is it and how does it work?
Wanted to share a powerful form of financing you may not know you have access to…
It’s called Invoice Financing, also called Receivables Financing or Invoice Trading.
Invoice financing provides businesses with working capital to improve immediate cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could otherwise if they had to wait until their customers paid their invoices in full.
Like all loans there are pros and cons but this particular loan can potentially give you access to a lot of capital when you’re in a pinch or want to take advantage of an opportunity in your business but don’t have the cash immediately available.
Pros
- Fast approval, minimal paperwork
- Helps mitigate cash flow emergencies
- Often flexible on credit scores since it’s based on your current invoices
Cons
- Relatively high rates/cost
- Need invoices as proof/collateral
- Generally not a good option for B2C businesses
If you’re looking for a fast way to get a short-term type of financing, invoice finance solutions could be a solid option.
Because the invoices themselves serve as your collateral, you won’t need to put up other assets to borrow money.
The application and approval process is much faster than with traditional loans as well.
Plus, you can see funds deposited in your account in as little as one business day.
The biggest drawback to invoice finance solutions is the high cost.
While quick approvals can help you solve immediate financial emergencies, you will pay for that convenience.
The fact that your collateral is your invoice may mean some types of businesses immediately won’t qualify.
B2C (business to consumer) companies looking for financial help may be out of luck, especially if their cash flow originates at a point-of-sale machine rather than long-term invoices.
As well, the invoice discounting rate you’d receive for your invoices means that you’re essentially losing out on the full revenues of the invoice that would have been realized over time.
Conclusion
If you’re a business-to-business company, Invoice Financing can be a viable option to get access to capital fast when you need.
Even though it can be expensive, not having access to cash when you need it can be even more expensive, thus making it an important type of financing to have available just in case.
Get qualified for business funding today by visiting our funding platform ROK Financial here.