Sometimes called accounts receivable financing, invoice financing allows businesses to borrow money despite the money owed to them by customers. This gives businesses a chance to borrow while not having to wait for customers to pay balances in full. Invoice financing frees up time to increase cash flow and invest in growth that you wouldn’t have if you had to wait for customer payments.
Invoice financing gives you a cash advance and uses your accounts receivable as collateral. Your accounts receivable is the invoices waiting for payment by your customers. With this form of short-term borrowing, you can sell your accounts receivable in order to receive immediate funds that can be used for other expenses.
One of the most frustrating factors of business ownership is waiting for payment. Many businesses use credit to sell to large customers or clients through invoices, but using invoicing can mean that funds get tied up when you need them most. A delay in payment can mean a delay in funds needed for other things.
At FaaStrak, we understand this is a common problem for business owners. In order to help businesses with unpaid invoices, we offer invoice financing in our marketplace. By signing up, we’ll analyze your business needs and see if it’s the best option for you.
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Companies with a business-to-business model of financing and with outstanding receivables can qualify. The receivables act as the loan’s collateral, so instead of worrying about your business finances, lenders are more worried about if the invoices make sense for them to finance. However, some lenders may take your credit score into account as well.
The maximum funds you can qualify for depends on how many invoices you have and their credit.
Understandably, your business invoices are the most important part of invoice financing. Many lenders have online applications that allow you to directly connect your business’s accounting program. This makes the process easy to move forward with, without any complicated paperwork.
Invoice financing works best for businesses with outstanding balances from customers. The fundamentals you should know are:
Invoice Financing guarantees that you’ll see the money for your unpaid invoices right away. This helps to give a more predictable cash flow to fund your monthly operations. If your business is short on capital, invoice financing can provide a quick way to access cash that you’re waiting for.
Invoice financing can be expensive, but it’s a service fee for having the cash accessible now rather than later.
Some financiers will give you 100% of your invoices, but you must pay them back over a term, often 12 weeks. By doing things this way, your business doesn’t wait for the customer to pay their debt, but they’ll often collect directly from your customer instead.
In invoice factoring, the notable difference is that the financer is purchasing your invoices completely and they collect from your customer directly on your behalf.
$1,400 could be a lot for your business, but it’s about how quickly you need the money. If you need to pay your utility fees but are still waiting for invoices, it could be worth it.