Invoice financing is a term that applies to a number of products that allow you to finance accounts receivable. The two most used solutions are factoring and asset-based financing. In this article, we discuss both solutions in detail.
Invoice finance bridges the gap between the point at which you make a sale and the time payment is received from the debtor, which is usually 30 to 60+ days. The key benefits include:
Only Make Repayments When The Money Comes In: Invoice finance isn’t paid back until the original invoices are settled by your clients. There are no interest payments, in fact nothing needs to be repaid at all to the funder, as the funder only collects their money from your debtors when the debtors pays their invoices. Businesses who use these services don’t have to make fixed-term repayments. That’s great for cash flow!
Business Growth: In order to grow, businesses need a steady cash flow. There are various reasons why factoring is good for business growth. To start with, it enables a business owner to focus on acquiring new customers rather than chasing debtors. Secondly, it allows a business to extend credit lines to its loyal customers who require credit facilities. Thirdly, it makes it possible for a business to pay its suppliers, and consequently avoid supply chain constraints. Fourthly, a business owner can focus on marketing his/her business rather than fending off creditors. These aspects can help you grow your business while competitors who are facing funding problems flounder.
Choose How Much Money You Need, And How Often: Businesses can choose how much cash they want to access when using invoice financing companies. They can stay in complete control and only access those funds that they require when they need it. Also, because invoice financing is typically paid back in a month or two (when the debtors pays), not a year/s later, companies can access the funds again and again, like a revolving line of credit.
Have creditworthy commercial clients
Be free of encumbrances (liens and judgement)
Invoice for delivered goods/services
Have good invoicing practices
The interest rate is low in the Secured loan due to the presence of collateral. Conversely, the interest rate is comparatively high in the Unsecured loan.
The borrowing limit is high in the secured loan which is comparatively low in case of an unsecured loan.
The Secured loan is given for long term while the Unsecured loan is for short periods.
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