Invoice Financing Important For a Business

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Invoice Financing Important For a Business
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In the world of business, there are several
important aspects that determine the quality of
services and transactions taking place. Invoice
financing also known as receivable financing is a
short-term borrowing extended by a lender to a
business based on unpaid invoices. To elaborate
this more concisely most companies sell their
services/ goods to customers such as retailers
and wholesalers on credit. This means that the
customers dont pay immediately, however, theyre
given invoices after an agreement is reached on
the bills due date and the total amount due. This
kind of arrangement can handicap the operation of
the company and they can resort to borrowing
money from a lender against the invoices. This is
what is also termed as financing the invoice.
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Structures of invoice financing There are two
ways in which a company can finance their
invoices invoice factoring and invoice
discounting. Invoice factoring is where a
company sells the outstanding invoices to a
lender who in turn pays the company 70-85 per
cent up-front of the invoices ultimate worth.
Here, the lender collects payments from the
customers.
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Once the lender receives full payment it then
remits the remaining 15-30 per cent of the
amounts to the company less interest and/or fee
for the service. Invoice discounting, is almost
similar to invoice factoring, however the
company collects payments from the customers such
that customers arent aware of the arrangement.
Here, the lender gives the company an advance of
up to 95 of the invoice amount. Once the
customers pay their invoices, the company repays
the lender, less interest or fee.
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• Importance of invoice financing
• Its a reliable and fast way of sourcing funds
  for your company without having to impress the
  banks with credit scores.
• Its a decent option to meet short term liquidity
  and demands of your products and services without
  fixed lines of credit.
• The cost of invoice financing is low compared to
  other funding options such as banks and merchant
  cash advance, etc.
• It gives you and your business some peace of
  mind. Since the heavy lifting of chasing payments
  has been transferred to a third party you can
  focus more on growing your brand, attracting more
  customers and boosting sales.

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