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September 27, 2018

How Invoice Financing Works for Building Your Business



Running a business is no easy affair. The age old problem remains: How does one get past difficult financial situations? Taking loans is actually not the best idea, simply because they are not always ready and available. They also can carry a hefty interest rate.



Instead, you may find others things, such as invoice factoring, to help you out.

With invoice factoring, you give your outstanding accounts and receivables to someone else, at a discount. The third party then collects the invoices as they become payable, and keeps the profits for itself.

How does invoice factoring help?

Invoice factoring involves a transaction and a debtor finance, where the businessman surrenders the sale of his outstanding accounts to a third party along with the benefit of a discount.

It attempts to make the settlement of debts have discounts included. This is why it can also be called Invoice Discounting. However, invoice financing allows the firm to meet its short-term liquidity needs on the basis of invoices which the customers are yet to pay.

What's in it for the other party?

Let's say you are an Amazon seller. Amazon takes well over two weeks to get you paid, and sometimes even a month. What do you do if you're getting more orders, but don't have the finances to keep the business going?

Invoice factoring is a great way out. Your debtor knows that the invoices would be paid, since it's held by Amazon. They would be willing to pay you the money for the invoices, minus a discount.

Understanding how it can help your business

Invoices that remain unpaid are outstanding accounts, or, account receivables that would receive their payment at a later period.  Here are a few situations when it can be useful.

  • If you are under a liquidity crisis, use invoice financing to meet requirements when the need is at its highest.

  • You can pay your suppliers and manufacturers anytime you want
  • You can look into purchasing new machinery as the need arises.
  • You do not have to wait for customers or clients for payment anymore.

The account receivables can be used as a security to get an advance. which means that if you're an Amazon seller, you could keep accepting new orders without worrying about your finances.

Top benefits for your business

Invoice financing offers businesses different benefits. Here is a look at a few of them.

Firstly, it allows fast approval despite the rates. It also involves minimum to almost no paperwork, depending on the various companies.

Secondly, it alleviates cash flow emergencies, by accelerating customer payments and reaching out to the company’s liquidity needs for its expansion. This way it provides immediate funding, and an upfront payment for an invoice till you are paid by clients.

Thirdly, such means are different from conventional ways of financing, as they are transparent and achieve higher ratings.

Fourthly, it does not require an asset as collateral to obtain cash as it only requires the payment from customers, which also increases credit sales and allows smooth cash flow.

The industries that would well suit such financing would be real estate, retail, market services, manufacturing, agriculture and so on. If you want to talk to a specialist before moving forward I recommend you contact Invoice Financing Australia.



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