Small businesses typically have limited financial resources because of their limited capital base. While this means they may consider loans as a major funding option, access is not always directly guaranteed. Financiers will consider their credit history, age, industry and even the type of assets they possess in determining whether to offer them loans. Still, small businesses may find it difficult to get a loan even with a good record of business success and above average credit score – simply because of their size.
There is, however, a different option for funding: Invoice Financing, which is rather suitable to small businesses in many ways. Also known as invoice factoring or accounts receivable factoring, invoice financing is an asset-based lending of products that allow companies to borrow money against the amounts due from customers. Here’s why this is a greater option for financing a business.
The business receives money quickly
With invoice financing, a business can receive up to 90 percent of its outstanding invoices in less than a week. Normally, companies that already have a working relationship with a factor such as Invoice Financing Australia can be sure to have this time reduced to just about 48 hours – making this funding option a perfect alternative for businesses in need of quick cash.
The business has fewer hurdles to deal with
Looking for cash from any financier or loaner often means going through credit checks to establish your creditworthiness. When this involves a small business loan or line of credit, there is the lack of guarantee that you’re going to get approved for the loan; which can be a terrible place to find yourself if you were looking to get a quick fix financially.
Few things are as discouraging as producing all your financial statements and every thread of proof to support that you have a good credit record; only to be rejected by a bank or other credit company.
Invoice financing, on the other hand, saves you from having to put up with that process. The factor may require some background information on your business especially if you are dealing for the first time, yes, but this is mostly towards determining the credit of the entity that is owing the invoice and hardly to ascertain whether or not you qualify for the service.
The business will not be in debt
One other beautiful thing about invoice factoring is that it helps take the element of debt out of the equation. You company never has to pay back the money because the factor will collect it from the invoices on the accounts receivable.
Once you get the money you need, you escape the need to take on a debt. Perhaps the only point when you may need to borrow money (create a debt) is when starting up, but once the business is rolled out, you can safely rely on invoice financing to fulfill your immediate financial needs without necessarily incurring further debt.
There are time and labor saving in invoice factoring
Invoice factors handle the collection of the accounts receivable, thereby saving your in-house accounts personnel from having to do the follow-ups on slow-paying invoices themselves. This can save your employees a lot of time on the floor and allow them to focus on other important aspects of the business.
Whichever way you look at it, invoice financing means no repayments, no principal nor interest to put up with – which makes it such a great alternative for businesses.