{"id":307,"date":"2019-06-28T06:27:09","date_gmt":"2019-06-28T06:27:09","guid":{"rendered":"https:\/\/www.finansme.com\/blognew\/?p=307"},"modified":"2019-06-28T06:43:46","modified_gmt":"2019-06-28T06:43:46","slug":"how-invoice-financing-can-help-your-business-grow","status":"publish","type":"post","link":"https:\/\/www.finansme.com\/blog\/how-invoice-financing-can-help-your-business-grow\/","title":{"rendered":"How Invoice Financing Can Help Your Business Grow"},"content":{"rendered":"\n

As a small\nbusiness owner, you probably strive to balance your cash inflow and outflow to generate\nsufficient working capital. You can leverage your outstanding invoices or Bills\nReceivable (BR) to meet your operational expenses.<\/p>\n\n\n\n

What\nis Invoice Financing?<\/strong><\/p>\n\n\n\n

Though\ninvoice financing is not technically a loan, it works on the same principles. Factoring\ncompanies offer to purchase your invoices at a discounted value, offering you\ninstant cash. The burden of collecting against the invoice is then transferred\nto the factoring company.<\/p>\n\n\n\n

Discounting,\nFactoring and Financing<\/strong><\/p>\n\n\n\n

The terms\ninvoice financing, invoice factoring and bill discounting are often used\ninterchangeably. There are, however, some distinct differences among them.\nFinancing is a broad term that refers to releasing the funds locked in\noutstanding bills. The differences between factoring and discounting include:<\/p>\n\n\n\n
BASIS<\/strong><\/td>FACTORING<\/strong><\/td>DISCOUNTING<\/strong><\/td><\/tr>
Transaction <\/strong><\/td>You essentially sell
your invoices to the
lender <\/td>		You get a loan
against
your invoices<\/td><\/tr>
Ownership <\/strong><\/td>The lender assumes
ownership of your
sales ledger and
relieves you of the
burden of collection.<\/td>		You retain ownership &
burden of
collection.<\/td><\/tr>
Control <\/strong><\/td>The financer takes
complete control. <\/td>		Your business retains
control. <\/td><\/tr>
Privacy <\/strong><\/td>The customer becomes aware of third-party
involvement<\/td>		Third-party
involvement remains
transparent to the
customer.<\/td><\/tr>
Impact on Business<\/strong><\/td>Knowledge of
third-party
involvement can
impact customer
relations.<\/td>		No knowledge of
third-party
involvement
translates to no impact on existing customer
relations.<\/td><\/tr><\/tbody><\/table>\n\n\n\n

Benefits of Invoice Financing<\/strong><\/p>\n\n\n\n

The biggest and most significant advantage of invoice financing is that\nit instantly releases funds for working capital. Some of the more subtle or\ntangential benefits include:<\/p>\n\n\n\n

  • Invoice financing requires no\ncollateral. You could think of it as a collateral-free finance option.<\/li>
  • Finance is available whenever you\nneed it. The process of invoice financing is usually completed within 24 hours,\nreleasing cash immediately.<\/li>
  • Invoice financing has a cyclical\neffect on business growth. As your turnover grows, so do your BR, which\ntranslates to more finance. More finance translates to business growth and\nhigher turnover.<\/li>
  • Using invoice factoring to pay\nyour suppliers promptly gives you a bargaining chip \u2013 reducing the material\ncost.<\/li>
  • Factoring relieves you of the\nburden of collection \u2013 freeing up resources for other tasks.<\/li>
  • If you use discounting, your\ncustomers are unaware of any third-party involvement. Thus, your credit rating\ngets a boost \u2013 from both, the customers\u2019 and the suppliers\u2019 perspective.<\/li>
  • Factoring companies charge\ncompetitive interest rates and provide not just finance, but also supportive\nguidance for business growth.<\/li><\/ul>\n\n\n\n

    When Should You Use Invoice Financing?<\/strong><\/p>\n\n\n\n

    Businesses like construction, manufacturing and wholesale trade have\ninherently long credit lines. Conversely, the working capital demands of these\nbusinesses are heavy. Invoice financing can resolve this imbalance.<\/p>\n\n\n\n

    Likewise, startups and small businesses struggle to recover receivables\nand pay suppliers. Invoice financing is the answer to their dilemma.<\/p>\n\n\n\n

    Invoice financing can drive business growth by putting your revenue\nback to work in the business while retaining your goodwill and credit worthiness\nso that you can continue to attract new customers and service the existing\nones.<\/p>\n\n\n\n

    Invoice financing comes as a beacon of rescue to any business by bridging\nthe gap between receivables and payables and freeing up working capital for the\nbusiness.<\/p>\n\n\n\n

    “Am I Eligible for Invoice Factoring or Bill Discounting?”<\/strong><\/p>\n\n\n\n

    Whether you are a small business or a large corporate, any business can opt\nfor invoice financing. There are a few regulatory requirements, and most\nfinancing involves an agreement between parties. You must consider a few\nthings, though, before you jump in.<\/p>\n\n\n\n

    Invoice financing translates to a deal in which the\nlender essentially takes over the risk of your outstanding debts. Any lender\nwill, therefore, seek assurance that the bills will be recovered sometime shortly.\nTo this end, financers and factoring companies may demand any or all of the\nfollowing:<\/p>\n\n\n\n

    • Proof that your business is run\nefficiently<\/li>
    • Proof that your clients \u2013 those to\nwhom owe you money \u2013 have a good credit rating<\/li>
    • Proof that you have not\npreviously discounted the same bills to another lender<\/li><\/ul>\n\n\n\n

      To provide the said proof, you will need to supply any or all the following\ndocuments:<\/p>\n\n\n\n

      • Your financial statements for the past two or three years<\/li>
      • Your documented collection process<\/li>
      • Bank statements<\/li>
      • Proof of identity<\/li>
      • Projected income and expenditure<\/li>
      • Other documentary proof as may be demanded by the lender<\/li><\/ul>\n\n\n\n

        If you have all the documentary\nevidence at hand, the process of invoice financing can be completed within 24\nhours.<\/p>\n\n\n\n

        Factoring or Discounting \u2013 Which should you choose?<\/strong><\/p>\n\n\n\n

        This is a call that every businessperson must take after carefully\nconsidering all variables. Specifically, you may ask yourself certain key\nquestions:<\/p>\n\n\n\n

        • “Why do I need the funds?” <\/strong>You should opt for financing only if you are unable to fund your business activities internally from your revenue \u2013 albeit with credit lines. You should also consider whether you are looking for a one-off solution \u2013 perhaps to fund a particular project \u2013 or regular financing options. Factoring works when you are looking for a single lump sum amount which you can explain to your debtors and who will be aware of third-party involvement. If, on the other hand, you are looking for a steady inflow of cash against receivables, or if you have seasonal, but regular demand for working capital, it would be advisable to work with a bill-discounting partner.<\/li><\/ul>\n\n\n\n
          • “Why do I need invoice financing?” <\/strong>If you need a constant source of financing because, for instance, your business is expanding, invoice discounting may be the right option for you, provided you can manage the collection of payments. However, if you need it for a specific purpose, such as meeting payroll or to fund a particular project, then invoice factoring may better suit your needs.<\/li>
          • “Do I need collection services?” <\/strong>If you struggle to collect your receivables regularly, you may be well advised to opt for invoice factoring. In particular, Small businesses may lack the resources for credit management and collection. Such businesses may also have heavy receivables and low working capital. Invoice factoring brings relief to such enterprises.<\/li>
          • “What would the funding cost?” <\/strong>The cost of invoice discounting can be hefty since you are not only giving up a small part of your revenue but also incurring collection cost. Factoring, on the other hand, eliminates collection costs; although revenue loss \u2013 which may be viewed as a fee for credit management \u2013 will still apply. If you are looking for a periodic discounting solution, you may have to incur additional set-up costs.<\/li>
          • The Size of the Business <\/strong>\u2013 As mentioned earlier, large turnover translates to more bills to discount, which in turn translates to more funding for business growth. Your decisions regarding invoice financing will be based upon the resources available, your ledger management process, and your turnover. Collection services that come with factoring can be high if your turnover is small. Conversely, small businesses may not have the resources for collecting bills, and services offered by factoring companies may prove helpful. Larger businesses may prefer to manage their own ledgers and opt for bill discounting.<\/li>
          • Loan Eligibility and Credit Rating <\/strong>\u2013Startups and small businesses usually have low credit ratings and do not qualify for bank loans. They do not have sufficient assets to put up as collateral. On the other hand, clients expect and demand long credit lines. In this situation, invoice financing can offer much-needed relief.<\/li><\/ul>\n\n\n\n

            Invoice financing leverages your business activity providing you immediate\nreturn on sales. It eliminates the need for costly business loans and funds\noperating costs.<\/p>\n","protected":false},"excerpt":{"rendered":"

            As a small business owner, you probably strive to balance your cash inflow and outflow to generate sufficient working capital. You can leverage your outstanding invoices or Bills Receivable (BR) to meet your operational expenses. What is Invoice Financing? Though invoice financing is not technically a loan, it works on the same principles. Factoring companies […]<\/p>\n","protected":false},"author":1,"featured_media":308,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1,2,44,3],"tags":[48,7,46,47,45,49],"_links":{"self":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts\/307"}],"collection":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/comments?post=307"}],"version-history":[{"count":1,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts\/307\/revisions"}],"predecessor-version":[{"id":309,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts\/307\/revisions\/309"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/media\/308"}],"wp:attachment":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/media?parent=307"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/categories?post=307"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/tags?post=307"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}