Sometimes it happens in a businessman's life that their
cash gets tight, and they have to look for other outside sources to manage
their expenses. In such cases, the small business owners are looking for a loan
either from the bank or from online lenders. But, not everyone thinks about
taking a loan, as you need to qualify for it, and it is also a time-consuming
procedure.
So, the business owners who look for timely financing to invest in their business can take advantage of Invoice Financing for Small Businesses. This is a more reliable and sensible finding option.
An Outline of Invoice Financing
Invoice Financing is also known as accounts receivable financing, which is a form of asset-based financing. In this financing, business owners receive cash amounts in advance in exchange for their unpaid invoices.
Now, the companies which give you the advance depending on the value of their invoices. Usually, financing companies can provide you with advance up to 85% of your invoices, and you receive the remaining 15% when you pay your invoices.
In this financing, your invoices serve as collateral on the cash amount you borrow from the company. Moreover, it is easy to qualify for this type of financing as compared to other loans.
The Working of Invoice Financing
With the help of invoice financing, small business owners can receive a credit line against their unpaid invoices without disturbing their relationship with their clients. Rather than selling your invoices to another company, it is an excellent choice to let invoice financing handle and control all of your invoices.
In addition to this, this financing enables you to reclaim control of your cash flow. It is a bizarre activity to pay your bills monthly, and this activity will never make you stress-free.
This will give you
peace of mind that you know paying your bills and knowing the details of your
funds is as easy as a piece of the pie.
If you think that Invoice Financing for Small Businesses only helps to give you a cash amount, then you might be wrong. Because it is a helping hand for the companies, who want to buy new products for their business, launch new marketing initiatives, buy the latest equipment and technology, and remodel their commercial sites or offices.
Types of Invoice Financing
There are two types of invoice financing;
●
Invoice Factoring
●
Account Receivable lines of
credit
Invoice Factoring
Invoice financing and invoice factoring, both terms are used interchangeably. But they are different from each other.
Invoice Financing you have to repay the cash amount you borrow, and it also includes the lender's fees. But, in Invoice Factoring, you sell your invoices to a company at a discount.
Account Receivable Line of Credit
In this type of invoice financing, you use your invoices to finance a credit line. Thus, the line of credit is backed by your invoices, and you receive 85% of the value of those invoices.
With the account receivable, the borrower has to pay an interest rate based on the balance. When a customer pays their invoices, then that amount is deducted from the credit.
Pros and Cons of Invoice Financing for Small Business
Invoice financing is the right option when you need cash
immediately, but it has some drawbacks that you should also consider;
Pros
●
You don't require
collateral for this because invoices themselves serve as a collateral
●
It is a confidential
lending opportunity.
●
You have to pay interest
only for the amount you borrowed.
●
You will get fast approval
●
It includes minimal
paperwork
●
Fast access to capital
Cons
●
It has higher fees as
compared to other financing options
●
It is challenging to
evaluate cost upfront because its fees are based on customers' time to pay.
●
It can be risky if the
customers don't pay for it
●
It needs invoices as proof
● It doesn't work for B2B businesses
Applying for the Invoice Financing
It would be best if you have the following things that a lender can ask you to provide when you apply for Invoice Financing for Small Businesses;
●
The list of invoices that
you want to finance.
●
Financial bank statements
● A copy of the government's issued identification.
But, these things may vary from lender to lender, so make
sure you know the qualification requirements before applying. Also, make a
complete file of all of your documents to avoid any risk.
Structured and Secure Invoice Financing
Lenders get benefits from invoice financing because it is structured and a secure line of credit. Your invoices act as collateral for the amount your borrow, and these things make it different from an unsecured line of credit.
The lender lends only a percentage of the total invoice amount to eliminate any risks that the borrower may not repay the loan. If a person is unable to repay the loan, then the lender is left as a creditor.
Closing Remarks!
To sum up all the discussion above, we can say that
invoice financing is ideal for businesses looking for cash amounts tied in
unpaid invoices. There are a lot of companies that give you invoice financing,
but one of the best financing Companies is BitX Funding that not only gives you
the loan but also suggests you the best suggestions that solve all of your
problems.
