Published On: Wed, Aug 6th, 2014

The Rapid Increase of Invoice Financing and What This Means For You

Invoice financing has raised more than a few eyebrows in the last few years. For those who own a start-up or SME they have proven to be valuable business tools. In fact, many professionals will assert that they have found invoice financing to be an excellent commodity.


What is Invoice Financing?

In short, invoice financing is when a third party agrees to buy your invoices. These invoices are unpaid. Once your invoices have been paid for, they are no longer your responsibility. This means that you are no longer responsible for chasing your customers.

In general, invoice financiers can come in different guises. They can be independent companies, banks or financial institutions.

What Does This Mean For Business?

If you have seen prosperous growth, you need to ensure that you are being paid or your services. Many successful businesses often used invoice financing as a way of recouping costs. This is particularly true of companies that are eager to get their cash flow moving again. While you are waiting for invoices, your cash flow is drying up. This means that you cannot invest in new stock.

Invoices can be sent on a 30 days or 60 day’s term. That means that you will have to wait even longer for your money. Invoice financing allows companies to regain the control of their cash flow. While they take a nominal loss, it means that they have cash available so that they can buy materials, stock and so forth.

Of course, this is a speedy way of accessing your cash. With invoice financing, you can make sure that you unlock capital and access your money quickly. This is an appealing prospect for companies. The ability to access one’s money is a great thing.

For those selling B2B, they can see the benefits straight away. When the invoice terms are longer than thirty days, it can put it a tremendous strain on the company. Late invoices and non-payment can restrict a company’s credit. In the current economic climate, this can have a negative impact on SME’s and start-ups.

Many new businesses see this as an increasingly viable prospect. Customers are not aware of any differences with the company and who they are paying. With this in mind, it makes for a much smoother payment transition.

While invoice financing sounds perfect, in theory, there are some things that you need to be aware of.

Invoice financing is still a form of borrowing. The principles of finance borrowing mean that you have to ‘borrow’ the money to the invoice financing company. If you have severe cash flow problems that are more substantial to sort out, this is not the best option for you. Invoice financing options should only be done when it is for short term game or to free up a small amount of capital. This should not be done as a quick fix solution to your cash flow problems in the main.

Should you be sensible in your approach to invoice financing, it can be a valuable business tool at your disposal.