Maintaining positive cash flow is a challenge for many businesses, especially SMEs. And yet smooth-running cash flow is necessary for a business to develop over time. Many business owners decide to take out a loan to maintain positive cash flow. Invoice financing happens to be a great solution for SME financing, yet the concept is still unknown to many.
Invoice financing is a funding method that allows businesses to essentially trade on 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 quickly use the extra money to fund its operations.
Besides quick cash flow improvement, invoice financing also offers a number of advantages.
Needs No Collateral
Normally, loan products require collateral as a security guarantee. Invoice financing doesn’t require one. The value of the invoice itself becomes a security guarantee.
Bank loans and other financial arrangements need time before funds can be liquidated. The process of invoice financing is much faster than traditional loans. A business can access their requested funds by the next one or two days as part of the business arrangement.
Better Cash Flow
Invoice financing improves cash flow conditions. Business owners can quickly convert their invoices into cash and use the money to run their businesses and cover their overhead costs. The business capital will cycle and the difference between income and outcome will be shorter.
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 an impressive loan size. By contrast, the limit of invoice financing can increase along with the business. When business sales and receivables increase over time, the business’ invoice value will also rise, which will in turn raise the business’ invoice financing loan limit.
It’s 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? Then invoice financing is your answer.