The recessional phase of the global economy has made it essential for businesses to manage their liquid assets carefully. Some businesses explore ways to raise more capital, whereas others look for hassle-free methods of cash flow funding.
Accelerate Your Growth Using Your Invoices
You can always opt for invoice financing to provide additional working capital to your business without incurring debts. As the name indicates, under this mode you can sell your unpaid invoices to a bank, financial institution or any other third party financier for a fee.
Based on the assets and liabilities of your business, you have the option to choose from two distinct forms of invoice financing, i.e., debt factoring and invoice discounting.
Two Distinct Types of Invoice Financing
Under this form of invoice financing, you are required to deploy an invoice financier to manage its unpaid invoices and collect money owed by your customers.
Once you raise the invoice, it will be purchased by the invoice financer. However, the financier will pay only a percentage of the original cost to you upfront.
He will pay the remaining balance, after recovering the funds from your customers.
After receiving the full payment, you have to pay interest and fees to the invoice financier according to the terms of your agreement.
When you decide to discount your invoices, the invoice financier will not manage your unpaid invoices. He will rather lend you money against the unpaid invoices at a certain percentage of their total value.
When the customers pay their invoices, the money will be received by the invoice financier. So you can borrow additional funds by discounting more invoices.
However, the invoice financier will collect debts from your customers. You have to recover the money from the customers and give the amount to the financier.
Some of the Significant Benefits of Invoice Financing
Each form of invoice financing will help you in improving cash flow. You can raise funds against the total value of your outstanding invoices.
So you can always use the money to accelerate the growth of your business without affecting the ongoing supply of cash.
The amount realized through invoice financing can be further used to fund future orders without providing any additional working capital.
Smart Invoice Management
When you opt for debt factoring, it becomes easier for you to get the invoices managed by a third-party financier.
Most invoice financiers deploy a team of professionals to effectuate the process of debt collection.
The professionals will make and send invoices to the customers, contact the customer over the phone, and collect payments.
At the same time, the team will document the process, and maintain a detailed account of each transaction.
Effective Financial Planning
The cash flow situation of a business can have a huge impact on financial planning.
When the owners or managers are required to explore ways to provide additional working capital, they find it difficult to take the right decisions on time.
As you can raise additional working capital through invoice financing it becomes easier for you to make the right financial decisions.
Avoid Incurring Additional Debts: Often businesses have to incur additional debts to overcome insufficient cash flow.
But invoice financing allows you to raise funds to accelerate growth without applying for loans. You can simply get your invoiced discounted or factored to fund new orders.
Also, you can raise more working capital as the volume of your sales goes on increasing.
Despite accelerating the growth of your business, debtor finance will require you to sacrifice a part of your profits.
But each form of invoice financing will make it easier to meet the working capital needs of your business without incurring debts at high-interest rates.
Check out our Commercial Finance Page for all our commercial finance options.