Maintaining a healthy and steady cash flow can often be a challenge for new and small business owners. Loan payments, utilities, and other expenses remain constant, while payment from customers can vary based on the aging windows of their invoices. More often than not, the waiting game can place a strain on your cash flow. To rectify this situation, many business owners are turning to invoice financing.
Invoice Financing is Directly Connected to Increased Cash Flow
Prior to the crash of 2008, if a company used invoice financing, it was considered a sign that the business was in financial trouble. Since then, businesses have realized the importance of a healthy cash flow, and invoice financing is now considered a best practice, rather than a red flag. Generally speaking, this type of financing allows business owners to monetize their unpaid customer invoices in exchange for cash. A business will sell its invoices to a commercial financing company (us), and the finance company will in turn process those invoices and give funds to the business, minus a small administrative fee. Invoices can be submitted in large batches or individually, as they are generated.
Invoice Financing is a Debt-Free Financing Option
Many business owners think that when money gets tight, the only viable option for working capital is to take out a bank loan. Much like the view of invoice financing has changed over the years, bank lending practices have also undergone drastic changes. Banks are now much less likely to approve business loan applications without a very high credit rating and long history of healthy revenue. Taking out a bank loan also means putting debt on the balance sheet, which can prevent businesses from seeking additional, long-term financing. Invoice financing, on the other hand, is considered a sale based on money the business is already owed, so it does not create additional debt.
Easing the Burden on Accounting
It can become very time consuming to track every customer invoice, send out reminders for payment, and recording each payment individually. With invoice financing, businesses are receiving their invoice revenue from one source – the financing company. Additionally, once the invoices are submitted, the burden of getting payment from customers is transferred to the financing company, so the accounting function within your business becomes more streamlined, and time can be spent focusing on payroll, budgets, and projections, rather than chasing down payments from various customers.
Invoice financing is a great solution for businesses owners who want to improve their cash flow without taking on debt, with the added benefit of freeing up accounting resources in the process.