How Invoice Financing Can Help Your Business

Most business owners are confronted with a tough economic environment

. They have to work harder and longer to get sales. And when you do get the sale, clients insist on paying their invoices in 30 days or more.

Although giving 30 to 60 day payment terms to commercial and government clients is customary, it can also drain your company's resources. Few companies have the necessary cash cushion to cover all their operational expenses while they wait for clients to pay. There are two ways to solve this problem.

The simple solution to this problem is to get clients to pay their invoices quickly. In reality, this strategy seldom works because large corporate clients are used to getting 30 - 45 day payment terms. If you can't offer it to them, they will go somewhere else. The second solution is to get business financing, and use it to cover the cash flow gap.

Getting a business loan in the current lending environment can be very difficult. Most institutions have tightened their lending requirements and will only provide business loans to companies that have a solid track record of performance, impeccable financial statements, seasoned management and substantial assets. Unfortunately, few companies can meet this criteria.

However, there is a different way to solve this problem. It provides the equivalent of a quick invoice payment - but without requiring your clients to pay quickly. It's called invoice financing. With invoice financing, a funding institution provides advance on your invoice. This gives you immediate liquidity to cover business expenses. The transaction settles once your client actually pays for the invoice. The funding institution charges a fee for their service, usually based on the size of the invoices and the time they took to get paid.

One advantage of invoice financing is that it's easier to get than a business loan. Having high quality commercial customers is the most important criteria for funding, since funding is based on your invoices. This makes invoice financing an accessible solution to small and medium sized companies who have a solid client roaster.

by: Marco Terry

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