Invoice financing is a quick and safe source of funds that can help improve cash flow significantly. Invoice finance companies pay you a portion equaling your outstanding invoices that have not been paid owing to delays on the part of your customer. The outstanding invoices are used as collateral. Waiting for your invoices to get cleared can not only be frustrating but can also stop you from funneling your capital back into your business in a timely manner.
The qualification criteria, application procedures, mode of execution, and the associated fees can depend on some other parameters too. Let us explore how to get invoice financing for your small business.
Enterprises that follow a business-to-business model (B2B) and currently have outstanding receivables or unpaid invoices can qualify for this kind of financing.
B2B model involves money transactions between a manufacturer and a wholesaler or between a wholesaler and a retailer. The customer purchases components or raw materials on credit and repays them in methodical transactions.
When there is a delay in this repayment, your cash flow is affected and you might have to think of how to get invoice financing for your small business.
Invoice financing lenders are not concerned about your revenue, profitability, or business experience. They just need to be confident about your pending invoices which should make sense to them.
The amount of loan you can secure will be determined by the quality of your invoice and your credit worthiness.
How to Apply?
Although your invoices are the deciding factor in the amount and terms of the loan, a few lenders may look at your credit score and business financials as well. Application is a fast and simple process.
A majority of invoice financing companies have an online application system in place that also provides you all information on how to get invoice financing.
Lenders such as BlueVine and Fundbox can sync invoices from your accounting software, simplifying the process
greatly. Documents you are likely to require while applying are your driving license, bank statements, a voided business check, your credit score, and outstanding invoices.
How Does Invoice Financing Work ?
Invoice financing can be an expensive solution though it predictable cash flow and smooth procedures make up for this. You can get about 85% of the total value of the invoices you offer as collateral. The remaining 15% remains as reserve with the lender until your customer pays the invoice. Loan lenders’ processing fee is also collected from this 15%, which will amount to around 3%.
A factor fee too may be charged which will be based on the time it takes your customer to pay your dues and is normally calculated on a weekly basis.
Some invoice financing companies will pay up to 100% of the outstanding invoices. However, in this, you will have to pay back the advance within a pre-defined time period, usually 12 weeks. Invoice financing business financing can incur more fees than traditional loans. The fee will be decided based upon expected invoice clearance time by your customer and their credit history.
Now that you have a good idea of what is invoice financing, how it works, its qualification criteria and how to apply, take the next step and apply for one, and grow your business.