Maintaining positive cash flow is a challenge for many businesses, especially SMEs. While invoice financing happens to be a great loan option for SMEs, the concept is still unknown to many.
Invoice financing is a funding method that allows businesses to essentially trade their unpaid invoices for a quick loan that will help them improve cash flow and increase working capital. The business will “sell” some of the outstanding invoices issued to their customers at a small discount for a loan. Typically, a business can immediately raise up to 80% of the invoice value – this is good news for a business that needs to use the extra money to fund its operations quickly.
Besides quick cash flow improvement, here are some of the advantages of invoice financing:
1. Requires no collateral
Traditional loan products usually require collateral as security guarantee. Invoice financing doesn’t require one. The value of the invoice itself becomes a security guarantee.
2. Instant cash
Bank loans and other financial arrangements need time before funds can be disbursed. The process of invoice financing is much faster than traditional loans. A business can usually access their requested funds by the next day or two.
3. Improve cash flow
Business owners can quickly convert up to 80% of their invoices into cash and use the money to run their businesses and cover their overhead costs.
4. As the business grows, loan limit can increase
Most collateral lending is limited by the value of the collateral itself. If the value of the collateral remains stagnant or only rises slowly, then a business cannot get a sizable loan. By contrast, the limit of invoice financing can increase accordingly depending on the invoice value.
5. It is based on a business’ current position, not its history
Bank loans and other financing methods typically take a closer look at a business’ history. A new business or a company with slow growth in the past can have difficulty getting approved for a loan. But invoice financing is based on the value of outstanding invoices, making the option suitable for a new or growing business with increasing sales volume and good prospects.
Need a quick cash flow fix for your business? Then invoice financing may your answer.
In need for funds? Check your eligibility now!