Invoice finance

Invoice finance

Invoice financing is one of the most common financing options opted by traders and other businesses who usually get paid after a long time period even after delivering the goods or services. Invoice finance is taken into consideration for managing cash flow, specifically when your business is in need of working capital to access timely opportunities for reinvesting within your business.

Invoice financing is a method in which a third party i.e. finance provider agrees to buying your companies unpaid invoices for a fee. Invoice financiers can be a basic individual (lender) or a specialist independent company, or even can be a part of a bank or other financial institution. 

Invoice Financing is quite similar to factoring except the fact that it does not include sale of your accounts receivable. In such trade transactions the sole purpose of account receivables is to act as collateral in order to access the advance and further you will be ultimately responsible for managing both the tasks i.e. customer relationships as well as payments. If in case your client becomes delinquent, then you will be fully responsible for the amount which you have advanced. The fees for such financing are 2-4% of your invoice value on a monthly basis. Usually there exists two types of invoice financing: invoice factoring and invoice discounting.

What You Need to Know About Invoice Financing

Pros:	Cons:
Rapid approval with minimal paperwork	Usually comes with high rates
Helps your business in mitigating cash flow in case of emergencies	You will need invoices or account receivable as collateral
High transparency with easy-understandability of pricing	Not suitable for B2C businesses

Best Clients for Invoice Financing:

●        B2B Businesses

●        Seasonal Businesses

●        B2B Businesses having Big as well as Well-Respected Clients

●        Businesses involved in Industries having Long Billing Cycles such as Clothing, Retail, Manufacturing, much more.

●        Businesses having Large Invoices along with Purchase Orders

Industries for which invoice financing is highly suitable includes:

●        Retail

●        Manufacturing

●        Real estate

●        Healthcare services and medical suppliers

●        Agriculture

●        Marketing services

●        Business consulting and legal services

PRELIMINARY REQUIREMENTS FOR INVOICE FINANCE

●        Registered Business Entity

●        Invoices having time period of 30 to 180 days

●        Business Vintage should be 2 years or more

How much does financing cost?

The cost of various financing lines might range from 1.15% to 4.5% for tenure of 30 days. It can be easily structured in many ways specifically based on your situation. For example, an invoice finance that averages 2% per 30 days could be provided as follows:

▪          0.67% per 10 days (0.67% x 3 = 2%)

▪          1% per 15 days (1% x 2 = 2%)

▪          2% for the first 30 days; 0.67% per 10 days after that

The actual finance structure is quite flexible and typically based on what works best for your business and the factor.

Benefits of invoice finance

●      Provide you with flexible payment terms

●      Enables your business to expand

●      There exist no pre-closure changes

●      Diversified segments can be served