Assuredly, one of the most disheartening aspects of running a flourishing enterprise is waiting for the invoices to be settled by your clients particularly when some of them are not able to settle their invoices on a timely manner. The money that you have extended as credit to your clients serve as finances which you cannot put back to work in your enterprise at once, which hampers your working capital.
What about in cases that you can assure that you will see cash for your invoices?
In this case, business owners can consider what is termed as invoice financing otherwise known as accounts receivable financing. In addition, this can serve as a reasonably costly approach to fund your enterprise operations; this can offer entrepreneurs more predictable cash flow. Take into account that this can considerably aid ease the burden on an entrepreneur’s business if he or she is running short of funds or badly necessitate settling other expenditures like payroll, taxes and the like.
What else do you need to know about invoice financing?
At the time you agree to sell the invoices to the funding firm, then, they shall advance you approximately eighty-five percent of the invoices’ total value. What is more, the remaining fifteen percent of the balance shall be held in reserve. It is worth mentioning that the funding firm shall collect their initial fee from the reserve amount and this can be about three percent which is quite similar to a processing fee. Then, the funding firm charges what is called factor fee which is actually reliant on the time till the invoice is settled. Please be guided that this is often computed on a weekly basis. For instance, a factor can charge one percent per week till the invoice is settled.
After that, the business owner shall receive the reserve amount less the total charges accumulated at the time his or her clients settle the invoice. Even though the given example is considered the norm, there are other kinds of invoice financing firms which shall simply advance you a hundred percent of an outstanding invoice. Then, you need to settle it weekly, with charges, over a set period of time which is usually approximately twelve weeks till the advance is settled. This means that you are not solely waiting for your client’s payment to settle his or her dues.
Who can qualify?
Businesses that run a B2B business model could be eligible for this form of financing so long as they presently have outstanding invoices.
For more information about qualifying for Invoice Factoring, see our guide on How to Qualify for Invoice Factoring.