Businesses often need additional working capital to strengthen cash flow, pay vendors, and cover the salaries of their employees. Invoice financing, also known as accounts receivable financing, offers a quick short-term funding solution that meets the needs of many companies. Here is some important information on how this type of funding works.
Methods of Invoice Financing
The various types of invoice financing use the value of unpaid accounts receivable for loans or advances. For instance, when you factor in your invoices, the financing company buys your invoices and advances 50 to 80 percent of their value; after the factor collects payments from your clients, you receive the balance of the invoice amount minus the financing fee. Invoice financing services use the invoice as collateral for a loan; you are responsible for collecting payments from your customers and then paying back the financing company. Some financing companies also allow you to set up a line of credit based on the value of your invoices.
Benefits of Invoice Financing
Invoice financing offers you an easy way to obtain funding when you need it quickly. The paperwork involved is minimal and approval is fast. Most providers allow you to apply online. This type of financing protects most of your assets because the only collateral required is unpaid accounts receivables. Your company can obtain invoice financing even if it is just starting or has poor credit as long as your clients are reputable and creditworthy. This offers you a funding solution if you are unable to get a loan from a traditional bank.
Qualifying for Invoice Financing
You can probably qualify for invoice financing if your clients have good credit and histories of on-time payments. This method of funding works best for B2B businesses with respected customers and lengthy billing cycles. Industries that often use invoice financing include manufacturing, healthcare, agriculture, retail, real estate, and numerous others.
For more advice on invoice financing, contact Ideal Financial Group.