Basic Business Finance Benefits of Invoice Financing

Basic Business Finance Benefits of Invoice Financing

As a start up or a small business owner may soon find out, funds may not always be around, even if the business is making money. When dealing with customers who purchase bulk orders and large stock, it may be necessary to have them pay via invoice to keep their business, which can take up to 90 days to liquidate. The most basic business finance solution would be to apply for a bank loan, but in today's unstable economy, who knows what the chances are of actually getting one. There are other business finance options available, but most of them involve collateral that one may not have, as well as a high degree of risk. The business finance option that is slowly becoming more popular among small businesses is that of invoice financing. This business finance option has many perks for the small business owner. Below we touch on some of them.

1. Invoice financing gives the business owner a reduced risk through management of the debtor concentration risk- what do we mean by this? In an ordinary bank loan, the bank will require some kind of assurance that you can actually pay back the loan that they give you in the event that the business does not make money. Common collaterals may be your house mortgage, your car, or other properties that you may have, that may not even be connected to the business. This system puts the small business at risk of losing everything that he has in case the business goes down. Because invoice financing does not deal with extremely large sums of money, then collaterals of this nature are not needed. All that is required by the finance company is the invoices, which they will be responsible for collecting later.

2. Invoice financing allows for transparency and clarity with regards to how much the business is making- The disadvantage with getting a large amount of money through a bank loan is that one may think that the money has already been earned. Invoice factoring tells you exactly how much the company has earned because it is monitored through the amount in the invoice. The business owner can then see how much he should only spend, with regards to how much money the company made in that time frame.

3. Invoice financing leads to complete automation of real time balances for client payments- because of the terms that come with the invoice financing option, business owners have instant access to cash and can decide freely what he wants to do with it. He is able to address what his business needs NOW as opposed to waiting for another 90 days, when the unaddressed need can develop into a problem for the business.

For small businesses looking for day to day financing solutions, invoice financing is presenting to be a real viable option. Anyone can learn more about invoice discounting contacting business financing companies in their area.

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