What Are The Pros And Cons Of Invoice Finance?
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Invoice financing is a viable alternative to traditional business loans and credit cards. Do your due diligence when researching invoice finance lending, and you’ll find most business owners view it in a positive light.
In the spirit of honesty, business owners should be aware that there are some potential downsides to this creative approach to business financing. However, those cons are few in number compared to the pros of invoice factoring.
Let’s take a look at the many positives and few negatives of invoice financing.
The primary appeal of invoice financing
Invoice financing is a highly unique approach to getting money into the hands of small and medium-sized business owners/managers. This approach quickly transfers cash to businesses with outstanding accounts receivables and current sales.
Even if your business is a startup with minimal revenue, there’s a good chance you’ll qualify for invoice financing if you have sales. The lender gives your business immediate cash for money due or sales recorded.
In turn, you pay a small percentage to the invoice finance lender. Your business is free to use the money as necessary.
Whether you want to expedite growth with capital investment, spend on marketing campaigns or hire new employees, you have the power and pounds to do so.
Pro#2: Invoice financing is fast
Timing is everything in business and life. Your small or medium-sized business needs money right away. Instead of waiting for a bank to drag its feet when considering your loan application or credit card application, choose invoice financing.
A lender will review your invoices or sales and decide if it is willing to cover the bulk of the money due. You’ll receive that rapid injection of money faster than possible through a bank or even a credit card application.
Pro #3: Flexibility
Invoice finance lenders tailor their approach to each individual business’s track record. If your company has specific needs, communicate those needs.
You can sell a portion or all of your invoices based on your unique cash flow nuances. There is also the option of selling invoices in other creative structures. Those details are analysed in-depth when meeting with the lender.
Pro #4: Sidestep the collateral problem
Attempt to obtain a bank loan, and you’ll likely be asked for collateral as a secured business loan. There is no need for any type of collateral when infusing cash into your business through invoice financing.
Why put up equipment, property or other assets to obtain financing when you can simply open your books to prove accounts receivable or sales are due?
That’s as easy as it gets.
Pro #5: Consistent cash flow
Every business needs a steady stream of cash. Take the invoice financing route and you’ll receive cash with regularity. As long as you have accounts receivables due and/or ongoing sales, those promises can become cash through invoice financing.
Though you won’t receive the entirety of the money customers owe, you’ll receive most of it without a lengthy wait. There’s no sense investing your limited time, money and other resources chasing those bills when an invoice finance provider has the capability to do it for you.
Pro #6: An opportunity for immediate growth
The influx of money provided through invoice financing or invoice discounting sets the stage for your enterprise to grow right away. Why wait for accounts receivables to roll in before catalysing growth?
Choose debt factoring and your business will start growing tomorrow. As long as you plan your business expansion with prudence, ensuring every penny of invoice financing cash is spent wisely, you’ll emerge as a winner.
Pro #7: Avoid the collections nightmare
If you were to poll small and medium-sized business owners, you would find most consider collections to be the worst part of business. Instead of burning through your limited overhead attempting to recover money due, let the invoice factoring specialists do the work on your behalf.
This is the liberation you need to focus on what you do best: innovating, serving customers and expanding market share.
Pro #8: Ease of use
Invest a small amount of time researching the invoice factoring process and you’ll find providers’ websites are easy to navigate. Invoice finance lenders’ platforms have exemplary user experience designs as the goal is to retain your business.
Moreover, most such companies have elite customer service designed to keep you in the fold.
Pro #9: The financial safety net your business needs
Customer non-payments and underpayments are inevitable. What matters most is that your business receives money for its value offering.
Instead of taking the risk of little or no payment, outsource accounts receivable to the invoice financing specialist. Take this route and you’ll receive some cash. Remember, even a percentage of money owed is better than nothing.
Pro #10: Peace of mind
Wouldn’t it be nice to leave the office at the end of the day knowing you’ll receive a high percentage of money due?
Such is the peace of mind provided by invoice financing. The lender will pay the majority of the money due to your business, then recover that money so you don’t have to. This peace of mind is truly invaluable.
If you are still on the fence about whether invoice financing makes sense, take pause. Think about the reason why you got into business in the first place. The goal is to make as much money as possible in a short period of time through value propositions and growth. You didn’t get into business to attempt to recover accounts receivable through phone tag and collections.
Con #1: Losing a percentage of money due
In the spirit of full transparency, every business owner/manager should be aware that invoice financing is applicable to only a percentage of money due.
Your business pays a small percentage of each bill in exchange for the remainder forwarded in cash. The percentage of the invoice’s total value paid to the provider is referred to as the discount fee.
Con #2: A potential setback in the battle of customer perception
It is only a matter of time until your customers find out that you are outsourcing accounts receivable to a third party. Though most such customers won’t think twice about the decision, a few might be less happy – especially if the funder is chasing payment more aggressively than you would.
If you’d rather your clients don’t know about you facility, choose a confidential invoice discounting facility.
Con #3: Relinquishing control over accounts receivable
As a business owner or manager, you are likely obsessed with control. You are self-reliant, independent and crave the locus of control.
Choose invoice finance lending, and some of that control is lost.
Though relinquishing control over accounts receivable through accounts receivable factoring isn’t ideal, it might be a net positive in the long run. There’s no sense paying an internal team to manage the entirety of invoicing and collections when a third party can do it for you.
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