Maintaining a good cash flow position is essential for the survival and growth of any business but it is especially critical for small business enterprises and start-ups to maintain healthy cash flow. Apart from paying their suppliers, employees and meeting operating expenses, these commercial establishments need to invest back into the business. Most small businesses and start-ups do not have the luxury of having a robust saving account or a line of credit to do so.
Invoice financing or debtor financing helps your small business establishment or start-up to stabilize its cash flow position. Under this financing method, you can convert your outstanding business invoices for thirty, sixty and ninety day's payment period into immediate working capital. This financing option is ideal for business-to-business (B2B) commercial establishments that need assistance in managing their cash flow because of slow paying customers. With invoice financing, you can conveniently turn your outstanding accounts receivable-money that your customers owe your business but yet unpaid- into immediate cash. Technically, invoice financing or debtor financing is not a loan. Rather, as a proprietor, you are selling your outstanding invoices at discount to invoice financing company for immediate cash. This allows your business or start-up support seasonal demands or cover temporary cash shortages when your customer invoices are past due.
Normally, an invoice financing company will advance business enterprises eighty-five percent of the value of customers' past due invoices. As soon as the customers clear their outstanding dues, the finance company will pay the business enterprises the remaining fifteen percent of invoice value. In exchange, the financier will charge you a certain percent for lending the amount and as administration expenses incurred by the finance company. The cash is essential in keeping business enterprises functioning during a cash crunch by allowing them to meet expenses like payroll or payments to suppliers.
Business enterprises can avail of the following advantages from invoice financing:
- ABR Finance Pty Ltd @Medium