Invoice finance, also known as Invoice Factoring, lets businesses convert their unpaid invoices into cash today, even if they’re unable to pay their bills in full at the end of the month.
As such, it can be an essential tool in helping you keep your business running and growing, but there are some things that you should know about this type of financing before you consider working with it.
Five of the most important things you should know about invoice finance.:
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Help in times of growth
Invoice finance is a type of asset-based lending that provides immediate cash to companies in exchange for a percentage of future sales. It can help in times of growth by providing cash on short notice, minimizing the business’s need to rely on the bank.
This option is typically well-suited for companies with consistently strong credit scores and large volume sales, such as contractors, distributors and small manufacturers.
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Understand facility limits
When you are struggling to raise the cash needed to stay afloat and pay invoices, an Invoice Financing Companies might be able to help. But, there are important aspects to understand when it comes to facility limits and invoice finance.
Facility limits: This is the upper limit on the number of days that you have from when your invoice was sent for payment before being invoiced as unpaid. Usually, a facility limit will be set at 180 days or less.
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Not all Invoice Finance was created equal.
There are many options available when it comes to Invoice Finance, but all do not provide the same service. With so many lenders competing for clients, each company will try to differentiate itself in some way.
Whether it is through pricing, size of funds you can borrow, payment terms, flexibility and more. Below is a comparison of the top six invoice financing companies in order of best customer experience and lowest rates
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Handle seasonal inventory needs.
Working capital is a term for how much money a company has available to finance its operations. Seasonal inventory needs can be particularly tough, but it’s where invoice finance helps. Instead of waiting for the end of the season to restock their store, retailers can use invoice finance.
They work with the supplier or distributor and make an advance on their invoices. This doesn’t mean taking out a loan-it means purchasing product from the supplier or distributor now and agreeing to pay back that amount in 30 days through payroll deductions over time.
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Your credit line grows with your business.
When you sign up for invoice finance, your credit line is determined by your business’ financial strength.
Larger businesses often have access to an unlimited credit line that increases with their growing business, whereas newer businesses may be able to get a credit line of up to $500K or more.
Conclusion
If you’re a business owner, not knowing about invoice finance can be a big mistake. This financing option can help make your business stronger, whether by increasing credit or lowering debt.
These five tips are the basics of what you should know to get started with invoice finance in your company’s growth plan.
