Invoice financing refers to a loan received from financial lending institutions including banks and credit unions, with interest rates which could be fixed or floating and is payable within a specified period of time; with collateral being invoices from creditworthy commercial clients.
Invoice financing is otherwise called Receivable Financing or Factoring. It makes funds readily available to use for the day-to-day running of the company. Companies are able to improve their working capital by pawning invoices from creditworthy clients.
Who is Qualified for Invoice Financing
In accounts receivable financing, the collateral is the outstanding invoices your business owns. Every other part of your business such as the age of your business, your revenue, or profitability is not as important as the invoice.
Therefore, any business type can qualify for invoice financing as long as there are available invoices. However, there is a limit to the amount of money you can have access to since the amount you can qualify for is dependent on your creditworthiness and the total amount and quality of your invoices.
How to Apply
Even though some companies require your business financials as well as your credit score for you to apply, the major requirement remains your invoice.
The worth of the invoice determines the amount of money and the terms of the financing you qualify for. This makes the loan application to be a fast and simple process.
To further facilitate the process, we will require few documents which will include the following:
- A valid Driver’s License
- 3 months Bank Statements
- Outstanding Invoices and Sample Contracts
How Invoice Financing Works
When you suffer delay in the payments of your invoices, it affects your business and hinders speedy growth.
So when customers or clients do not pay up on time, your working capital becomes less. Invoice financing provides you an escape route making it possible for you to pay for your invoices at once.
Once you have applied for accounts receivable financing from a financing company, you immediately get 90% of the value of your invoice.
The lender gets to collect a processing fee often between 1% and 3%. A fee known as the factor fee is usually calculated on a weekly basis depending on how long it takes your client or customer to pay back.
You can be charged as low as 1% on a weekly basis. All of these fees are then subtracted from the 10% that was remaining. The remnant is eventually paid back to you.
Benefits of Invoice Financing
Account receivable financing provides you with steady funds to ensure that your business is running continuously. It does not allow you to be pinned to a point waiting for the payment of invoices while your business suffers.
With invoice financing, you are able to keep your business up and running since you can have access to up to 90% of the value of your invoices. The remaining 10% is later paid to you.
Qualifying for invoice financing is quite faster as you can qualify within a week. Since the invoices serve as collateral, you are meant to repay the loan when the customers pay the invoice.