Invoice Financing
Quick financing for growing small businesses.
Invoice Financing
What is invoice financing and how does it work?
Invoice financing is a financial service that allows businesses to borrow money against the amounts due from customers, helping to improve cash flow, pay employees, and fund daily operations. This type of financing is particularly useful for businesses that have long invoice payment terms or that often experience delays in receiving payments from customers.
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Two main types of invoice financing
Invoice Factoring: This involves selling your invoices to a third party (a factor) at a discount. The factor then takes over the responsibility of collecting payment from the customers. Typically, the factor pays the business an upfront percentage of the invoice value (usually around 70% to 90%) soon after the invoices are issued. Once the factor collects the full payment from the customer, they will pay the remaining balance to the business, minus a fee for the service.
Invoice Discounting: This is similar to factoring in that a business borrows money against its invoices. However, with invoice discounting, the business retains control over the administration of its sales ledger and collection of payments from customers. The lender provides an advance of a percentage of the invoice amounts, and the business pays a fee for this service. When customers pay their invoices, the business repays the lender, typically through a revolving credit facility.
Both options provide immediate liquidity and are not considered debt—rather, they are an advance on revenues that are already due to the business. Invoice financing is a popular choice for businesses that need to manage their cash flow more effectively, especially for those in industries where it’s common to wait 30, 60, or even 90 days for payment after delivering a product or service. This financial tool allows businesses to access the value of their sales immediately without waiting for customers to pay, thus minimizing cash flow issues.
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