INVOICE FINANCING: BENEFITS TO SMALL BUSINESS

2007-03-08 10:33:40

( Financial )



Small businesses with limited access to credit lines or loans from banks and other lending institutions can access working capital via invoice financing. Invoices or account receivables are sold at a discounted rate to a factoring company. Hence, invoice financing is also called invoice discounting. The factoring company, in return, earns money by charging a discount fee and a service fee to small businesses.

Unloading Collections

Invoice financing gives you the opportunity to unload your collections and dispense the waiting time usually practiced in invoice payments. The discounted amount you get is offset by the opportunity to sell another batch of products at an earlier schedule. Also, you can concentrate your resources in selling which allows you to recover faster the cost incurred in factoring.

Working Capital Realized Soonest

Many small businesses’ working capital is confined to the inventories that are waiting to be sold. You have to wait for invoices to be paid to recover your working capital. Invoice financing allows immediate recovery of working capital.

Quick Cash

Unlike business capital loans from banks, invoice financing forego the requirements of business plans and tax statements since the products are actually sold and already waiting for payment. Thus, release of cash is quicker. You are paid after you have issued invoice to your customers for shipment and delivery of products which normally would take an average of 24 hours.

Invoice financing is better than taking credit to beef up your cash flow. You get cash quicker and clean. You are a not borrower who needs to meet monthly obligations. Rather, you are a seller and the factoring company still owes you the balance from your total invoices and the discounted invoices. The balance is collected by the factoring company in your behalf. In the process, you are charged a service fee.


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