Interruptions to cash flow can make or break a small business. Fortunately, there are numerous financial products available to today’s business owners, such as SBA loans, small business loans and business lines of credit. But if you regularly use invoices to bill your clients, invoice financing may be one of your best options to secure working capital and keep the lights on.
Also known as accounts receivable financing, this lending option allows you to leverage unpaid invoices as collateral against short-term loans. As such, invoice funding can help you manage gaps in cash flow due to unpaid bills.
Of course, as with most financing solutions, it’s important to understand the risks and benefits associated with invoice financing before you move forward. This guide will cover the basics of invoice financing for small businesses and how to choose the best invoice financing company.
What is Invoice Financing?
Invoice financing is a lending option that allows business owners to use their outstanding invoices as collateral against a cash advance. This secured loan is typically granted to business owners who can prove there is a reasonable expectation of incoming revenue over the next few months.
>> Read More: Secured vs Unsecured Loan: What’s the Difference?
If approved, borrowers can typically expect an invoice loan for 80% to 85% of the total invoice amount. Once the invoices are paid in full, the borrower must repay the loan plus any interest and fees.
There are numerous reasons to consider invoice financing, but typically its best for borrowers who have short-term financing needs. Similarly, businesses that have limited cash flow or expected seasonal shifts can leverage invoice financing to secure a business line of credit to bridge gaps in working capital.
Take, for example, a caterer who needs to replace a broken oven. They are short on working capital but expect payment for several events in the next few months. Using their outstanding invoices as collateral, the business owner can seek a loan through an invoice financer and purchase the oven immediately instead of waiting several months for invoice payment (and potentially turning down new clients).
What are the Best Invoice Financing Companies?
If you’re considering invoice financing, there are several lenders that you may want to consider. We included what type of invoice financing each company offers. Invoice factoring, unless otherwise noted, means that the lender will collect invoices from your customers after providing you the money up front.
Read the full article here: Invoice Financing: Best Lenders & More Information