SME owners are actively looking for funding sources, whether it’s funding for growth or regular cash injections. Is invoice financing one of the best options for them?
Invoice finance is growing in popularity as a simple solution to a variety of financial funding needs overseas, but many local business owners have no idea what invoice financing is all about. Bad connotations always come to people’s mind as this type of finance was used primarily for companies in financial difficulty.
Why invoice financing can benefit SMEs?
It can become troublesome when businesses that offer customers credit terms, even when the company is performing well. Late payments are a common problem in any business sector, and when it happens regularly it can cause an imbalance in a company’s cash flow. And not every one of them is eligible for the conventional bank loan. We just published an infographic explaining why invoice financing is better than a bank loan. Spend some of your time on that link if you want to know more.
Cashflow can push even large companies into trouble, especially for those which rely heavily on incoming payments to continue running their business – for example, wholesalers. These businesses need to purchase more stock or recruitment consultants to keep their business running.
Invoice financing enables businesses to receive payment on time whenever an invoice has been issued. When a business signs up for invoice financing services, they submit their invoices to the invoice financing company with a small discount percentage of the invoice amount. Once the invoice is fully funded by the investors, the business owner will transfer the invoice ownership to the investors. The invoice financing company is now responsible for the debt collection and the business owner can walk away with immediate cash.
A few more advantages of invoice financing. Firstly, you will have the certainty of when you will be paid every time you issue an invoice and how much of the payment you will receive. This allows you to plan your cash flow more effectively so that you can cover your outgoings each week or month.
Another benefit is that the invoice financing marketplace will take on the role of chasing customers for payment. This frees up time on phone calls and or sending letters to customers.
Some business owners become worried that, by using a third party to contact customers for payment, valuable relationships could be tainted. However, the business owners can work closely with the invoice financing company on the nature of the communication with customers. Additionally, maintaining your own contact with customers on a regular basis ensures that there are no negative effects.
Invoice discounting allows a business to keep control of its sales ledger. When companies have a large sales amount by giving up a small discount amount, they can gain an immediate big cash injection with invoice discounting. This can be used for growth activities and management buy-outs or buy-ins.
An advantage of invoice finance is switching your long-term asset into liquid cash – meaning that you don’t have to keep extending your overdraft or re-applying for a loan as per conventional business lending.
If you feel you could benefit from an invoice finance facility, register your business account here for free.
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