Did you know that only 25% of small businesses make it past 15 years after their launch? Running into cash flow issues is a major contributor to the collapse of such businesses. Yet, in business, it’s impossible not to get into a situation where finances get a little tight.
Small businesses have to turn to traditional financial institutions for help to stay afloat during such times. But these institutions take time to process, approve and forward the loans. It might be too late when these small businesses finally get the funding.
Invoice financing for small business is a better alternative for solving cash flow issues. Want to know more about invoice financing and how it can help you? Read on to learn more.
What Is Invoice Financing?
Invoice finance is a type of funding businesses get from third-party lenders by using their uncollected receivables as security for the loan. Third-party lenders recoup their investment in two ways.
First, by charging a fee for the amount borrowed. The other way is by taking a percentage of the uncollected receivables when debtors settle them.
Invoice finance is an immediate source of working capital for businesses to meet their immediate expenses such as rent and salaries. It eliminates the need for small enterprises to wait for long periods for clients to settle their unpaid invoices. Small businesses normally depend on payments from clients to keep their operations afloat.
The Different Types of Invoice Financing for Small Business
There exist three distinct types that you should know about. The first is invoice factoring and it’s the simplest way of accessing invoice financing. It involves selling an outstanding invoice to a lender for a portion of the invoice’s amount.
A lender then collects the full invoice amount from your clients as compensation. Invoice discounting is similar to invoice factoring but you’re responsible for collecting the money that clients owe the business. Lenders compensate themselves by deducting the loan amount plus an interest/fee from the collections you make.
A receivable-based line of credit is another form of invoice finance that works like the standard line of credit. It enables you to draw funds as you invoice clients.
You’ll make the repayments when clients settle their bills. Click on this link for more info.
The Benefits of Invoice Financing
The process of getting invoice financing involves minimal paperwork. Approval time for the loans is shorter in comparison to seeking funding from traditional financial institutions. This credit facility is flexible and ideal for mitigating cash flow emergencies.
Besides, it’s easier to secure funding using invoice financing. You won’t need collateral for the loan since the unpaid invoices act as security.
Streamline Your Operations With Invoice Financing
Cash is like the oil that keeps the engine running for any business. Without the cash, your operations will come to a sudden halt even if you have impeccable management skills.
Securing timely funding during your lowest moments financially can breathe a new lease of life into your business, giving it a chance to remain a going concern.
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