Top Questions Asked About Invoice Financing Applications

Financing Applications

Are you an owner of a small business who’s trying to come up with ways to fill your short-term cash flow needs? Perhaps you’re wondering if taking out a loan from a bank or any traditional financial institution is the right decision for you.

If you need the money as soon as possible, applying for a business loan from a traditional lender isn’t your best option. In fact, most times you’ll be required to wait for about 45 to 75 days before you could get any word from them. This waiting period is too long for someone who needs to cover payroll, suppliers, taxes, and utilities. Fortunately, you can apply for invoice financing to meet your short-term capital gaps.

What Exactly is Invoice Financing?

Invoice financing, also known as “accounts receivable financing”, is a funding alternative that involves a third-party company that provides business owners with immediate cash for the money that they’re going to collect from an invoice.

In other words, it’s a faster and more convenient way for companies to acquire advance cash from their unpaid invoices. The third-party company gets paid a percentage of the invoice amount as a fee for the money lend. For small businesses that are dealing with customers who take a long time to pay, or other issues that are related to obtaining other kinds of business credit, invoice financing is an ideal and convenient option.

What are the Benefits of Invoice Financing?

When you apply for invoice financing, you sign up for one of the easiest ways to secure funding. Unlike applications for business lines of credit or bank loan financing that takes months to get approved, you can be approved for invoice financing in just three business days. This is amazing news for businesses who need to immediately cover overhead costs.

Most everyone agrees that cash flow is a top priority for any type of business because a company can quickly wiltand die if it runs out of money. For this reason, it’s extremely important to match your business expenses well to your incoming cash flows.

While cash inflows are highly variable, your bank balances constantly bear the brunt of your recurring expenses. Invoice financing fixes this problem by enabling small and mid-sized enterprises to match cash inflows with their expense requirements.

There’s nothing more painful than letting business growth opportunities slip through your fingers. However, it would be impossible for you to take your business to the next level if you’re short on cash because you’ll need enough money to support any type of plans to expand.

Thanks to quick approvals for invoice financing, you can have enough funding to take on more projects and clients. In other words, you can rest easy knowing that you’ll be able to meet your cash flow needs while you’re expanding your business.

Since you won’t have to worry about cash flow problems when you apply for invoice financing, you’ll have more time to zero in on your business goals. For example, you’ll have more time and energy to focus on reaching more customers by ramping up your marketing efforts.

What are the Two Common Invoice Financing Solutions?

The two most common invoice financing solutions are invoice factoring and asset-based financing.

What is Invoice Factoring?

Compared to asset-based financing, invoice factoring is a simpler form of invoice financing. If you choose this option for your business, you’ll only need to sell your accounts receivable or your invoice to a particular invoice factoring company at a discounted price which you will immediately get paid for.

The factoring company will check on your invoiced customers’ creditworthiness which will take 2 to 3 business days before they advance up to 100% of your invoice. This means you won’t have to wait for months before you receive your client’s payment. When your invoiced customer pays up, the factor simply remits the balance, minus a fee, to your company.

What is an Asset-Based Loan?

If you want an invoice financing solution that enables you to finance your business assets, then asset-based loans are the way for you to go. Aside from invoices, these assets can also include inventory, equipment, as well as machinery.

It’s important to note that asset-based loans are more challenging to obtain than factoring, but are also easier to acquire compared to a bank line of credit. Similar to factoring, this solution also utilizes your invoices as collateral and provides you with the cash you need to meet your recurring expenses, as well as pay for additional projects.

However, compared to invoice factoring, it usually takes more time to set up an asset-based facility. In fact, you may need up to four weeks to complete the line set up and another two days to obtain the funds.

Furthermore, since this option requires more documentation than invoice factoring, it works better for companies that have excellent financial statements, as well as a consistent track record of profitability.

Are You Planning to Apply for Invoice Financing?

When you apply for invoice financing, you won’t have to struggle with cash flow problems that can stall your business operations. You can also say goodbye to worries over payroll, bills, hiring of staff, and investment in technology, as well as other unexpected incidental expenses.

At the end of the day it’s a viable financing solution that meets the needs of small business owners everywhere. 

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