WORKING CAPITAL / INVOICE FACTORING
Working capital is for when your business has unpaid customer invoices that you can’t wait to be paid. You can use invoices to get cash now. Best for businesses with unpaid invoices that need fast funding, which is easier to get approved for compared to other similar options.
Pros:
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Fast Cash
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Fairly simple and easy approval
Cons:
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Cost of borrowing may be high
Best for:
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Businesses with invoice that need cash right away
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Invoice with 30,60 or 90 day payment terms are best
What is Invoice Financing?
Invoice financing is a way for businesses to borrow money against the amounts due from customers. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full. Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money. Invoice financing can solve problems associated with customers taking a long time to pay as well as difficulties obtaining other types of business credit.
KEY TAKEAWAYS
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Invoice financing allows a business to use its unpaid invoices as collateral for financing.
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A company may use invoice financing to improve cash flow for operational needs or speed up expansion and investment plans.
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Invoice financing can be structured so that the business' customer is unaware that their invoice has been financed or it can be explicitly managed by the lender.
When businesses sell goods or services to large customers, such as wholesalers or retailers, they usually do so on credit. This means that the customer does not have to pay immediately for the goods that it purchases. The purchasing company is given an invoice that has the total amount due and the bill's due date. However, offering credit to clients ties up funds that a business might otherwise use to invest or grow its operations. To finance slow-paying accounts receivable or to meet short-term liquidity, businesses may opt to finance their invoices.
Invoice financing is a form of short-term borrowing that is extended by a lender to its business customers based on unpaid invoices. Through invoice factoring, a company sells its accounts receivable to improve its working capital, which would provide the business with immediate funds that can be used to pay for company expenses.
