There are any number of valid reasons why a business may find themselves cash poor. However, regardless of the reasons, the most immediate issue is rectifying cash deficits by getting the money needed to cover overhead costs, pay bills, pay employees or continue with an expansion project. While going to a bank and looking for a loan is one option, a more convenient option may be that look into the prospects of invoice finance.
Some business owners may be aware of this type of financing while others, especially those new to the business industry, may be unfamiliar with the term. With that said, single invoice finance, also known as factoring, is a method in which outstanding invoices owed to a business by customers will be leveraged in return for a short-term loan.
One of the benefits of this type of financing is that often times a businesses credit worthiness may not be taken into account. This can be beneficial to businesses that are fairly new and have a number of different outstanding invoices. Newer businesses may have not established a level of credit that would allow them to get a loan pursuant to their credit history. Fortunately, with factoring finance options, the businesss lack of long-standing credit wont hurt them.
As far as the process goes, getting financing for the invoices is fairly straightforward. The business will leverage their finances and in return, they will receive a percentage of the invoice as a short-term loan. Once the invoice in question has been paid, the business repays the finance company, plus any interest or fees that have been charged for the that particular transaction.
On top of the benefits of getting the necessary capital, businesses also have a great deal of flexibility when it comes to what happens after the money received. Businesses that use the invoice have the ability to exert as much or as little involvement in collecting on the invoice as they deem fit. The business that sold the invoice can continue to work to collect on the outstanding invoice in order to pay back the invoice financing. If they dont have the resources to collect in a manner that will expedite payment of the invoice, the debt factoring company can take over the collection process. This relieves the burden of collecting on an invoice if the business is taking resources away from other vital business duties, and charging employees with the task of collecting on past due invoices.
If your business has a great deal of money tied up in outstanding invoices, and it is running short on operational cash, invoice financing may be the option your business is looking for. With the ease of getting this type of financing, its something cash poor businesses should take the time to consider.