If you are a small business, your financing needs are different than that of a larger business, so you must carefully consider the choices. One of the ways financing can be done is through invoice finance. To understand the advantages of this type of solution, you need to define it.
Invoice finance is a factoring solution that permits you to receive cash immediately from your debtors’ ledger. This type of solution is also referred to as cash flow finance, invoice discounting, or invoice factoring. Using this solution provides an option other than a traditional bank overdraft.
Therefore, when you opt for this type of small business financing, you can borrow as much as 80% of your invoices’ value on a recurring basis. You merely have to present your invoices for funding. Account statements are sent out by the funding provider, and the provider of the financing also follows up on accounts that are overdue. All invoices should be provided for factoring.
The Length of Funding
You do not need to sign up for a minimum time when you choose this financing option unless it is specified in your contract. You can exit the agreement anytime, provided you allow for repayment. All the invoices are funded up to 90 days from an invoice date. After this time, the funding is removed. To make up for the shortfall, you need to create a new invoice or supply the cash yourself.
Because factoring is disclosed, all customers must be alerted. The cost of this type of funding is based on the amount of turnover; therefore, an administration fee of between one and five percent is charged. In addition, you will be charged interest on the borrowed amount.
What You Need to Provide
Any turnover is considered when you request this type of funding. If you supply all the needed information, you should be able to establish a factoring facility in 48 hours. To apply for the funding, you need to supply your company name, your email address, and first and last name. You also need to include your contact phone number. The financing company will require that you provide the number of your invoices now due in addition to your turnover.
If you wish to maintain your business operations, this type of financing offers a viable solution as it uses your invoices to support your funding needs. However, not all invoices can be factored. These documents include the following:
- Invoices that are billed to the general public
- Retention invoices
- Invoices covering penalties or interest
- Invoices for goods that have not been delivered
- Return or sale invoices
- Bad debts or aged invoices
You will know when customers pay because you are provided with current ledger data through daily electronic reporting or through viewing the information on the funding company’s website.