When businesses need additional working capital, invoice financing is usually the last funding solution they have in mind. But in fact, it’s actually one of the ideal solutions to your cash flow problems. Because of its low-risk factor and flexibility, invoice financing has become increasingly popular among small business owners. However, many people are still unfamiliar with the concept of invoice financing.
Invoice financing is the process of borrowing working capital against pending invoices. If your business generates revenue and collects invoice payments, then you’re most likely qualified for invoice financing.
Now that you have an idea on what invoice financing is all about, here are four reasons why it’s ideal for small businesses:
1. Lenders Don’t Focus on Your Credit
When applying for traditional bank loans, your business typically needs to have perfect credit. Businesses with less-than-stellar credit are often denied funding. But with invoice financing, you’re in luck.
Invoice factoring companies don’t focus on your business’ credit standing, but instead they look at your customers’ creditworthiness – the ones whose names are on the invoices. Invoice financing is a great option for businesses selling in bulk to large retailers. If your customers have high credit scores, you’ll get better rates from factoring companies.
2. Invoice Financing Poses Lower Risks
Compared to traditional loans, there’s lower risk involved when it comes to invoice financing. The money you borrow is based against your business’ pending invoices. When your business experiences problems along the way, you don’t have to worry about losing any personal or business assets. The factoring company you’re working with will only take charge you based on the value of your invoices.
3. You Don’t Have to Wait for Months In Order to Receive Payments
One of the primary reasons why business owners opt for invoice financing is the speed. Businesses typically wait for 30 to 60 days to receive payment, but with invoice financing, your business can be funded within 24 to 48 hours. Once you receive the payment, you can immediately use the funds to invest in the growth of your business. You can also use it to take advantage of business opportunities that might come your way.
4. It’s Technically Not a Loan
Invoice financing is not a loan, which means you don’t actually borrow money. With invoice financing, you accept the funds based on the invoices (or payments) your customers already owe you. The money is rightfully yours; you’re just receiving it in advance via a third party company. Invoice factoring is a perfect way to bridge cash flow gaps without having to bury your business in debt.
Invoice financing is a great financing solution that not many people know about. If you have any questions regarding small business loans or invoice financing, SMB Compass can help. We have a team of trusted financial advisors ready to help you with anything – no strings attached. You can contact SMB Compass at (646) 569-9496 or email us at info@smbcompass.com. We’d love to hear from you!
