Invoice Financing 101: What Every Business Owner Needs to Know

Invoice Financing 101: What Every Business Owner Needs to Know

The cash flow problem in businesses has been a major concern for business owners, especially those in the SME industry. One of the leading causes of this cash flow problem is the inability to recuperate business capital due to late payments by customers.

Do you know that businesses will thrive more if there is a way to get their invoices processed on time? That is, they will be able to make all necessary investments for the growth of their business in due time. The cost of running the business will not be a problem as the capital to do this will be readily available. But still, customers’ disappointment must be factored in. Still, there must be a solution best to solve the cash flow issue.

What are business owners doing to solve the issue of cash flow?

Business owners are looking for a way to solve their cash flow issues. Most business owners are looking away from traditional loans and the adverse effects it has on their businesses. They are looking for a way to get funds that will not require them to submit their business papers as collateral to take loans. They are tired of the high-interest rate attached to taking traditional loans.

Many CEOs and business owners are already adopting Invoice Financing to solve their cash flow problems. This article will help you know more about invoice financing and determine if adopting the financing system is best for your business.

Reasons why business owners are adopting invoice financing

Businesses usually offer their products/services on credit to their customers. That is, they will provide their customers with the product or service they request and allow them to have some days before they can pay for it. They usually accompany these deals with invoices showing the amount to be paid and when they are expected to pay it.

For example, business owners that are involved in supplying goods to supermarkets adopt this business model. They will supply the goods their customer (the supermarket) requires and allow them to pay for the supplies after they must have sold them.

This business handling system might be risky if the customer fails to meet their end of the bargain for any reason. To avoid this risk affecting your business’s cash flow and operations, you might want to consider invoice financing.

What is invoice financing?

Invoice financing is a method of business financing through which businesses get funding by using invoices issued to their customers as collateral. Business owners can access up to 80% of their invoices from a third-party invoice financing provider. This way, they will not have to wait until their customers pay the invoices issued to them before they can pay employees and suppliers, reinvest in operations and growth, and improve their business cash flow.

With this solution, business owners do not have to seek traditional loans to keep their businesses running. They will also avoid the effects of the high-interest rates of taking traditional loans.

How does invoice financing work?

Invoice financing working mechanisms are usually similar in many invoice financing service providers. However, there might be little changes in their service charges and the funding percentage.

Here is a quick step showing how invoice financing work;

  • You go on with your business as usual and issue an invoice to your client, expecting them to pay a certain amount at a specific time.
  • You pass on the invoice to the invoice financing service provider you are registered with.
  • The service provider pays you a certain percentage of the invoice, usually within 48 hours since you submitted your request.
  • Depending on your agreement with the service provider, you either chase the payment or let them do it.
  • When the payment comes in, your service provider removes the amount you got funded initially with their service charge and remits to you the amount that is left.

Is my business eligible for invoice financing?

Generally, if your business is a type that deals with invoices, then you are best fit to enjoy the benefits of invoice financing. Other criteria will be determined by the service provider you are choosing. Some might have different turnover limits that they may use to admit businesses interested in their service. Your job as a business owner is to check the basic requirements a service provider requests to know if they are the best fit for you.

How does invoice financing benefit my business?

We have been able to prove that invoice financing helps the cash flow in businesses. That is not the only benefit it offers you as a business owner. Below are more benefits you stand to enjoy with invoice financing;

  • Invoice financing is more flexible than business loans and bank overdrafts.
  • It helps reduce the risk of taking high-interest loans.
  • It provides the capital needed to keep your business running.
  • It exposes you to more investment opportunities for your business growth.

How do I get started? At Earnipay, we offer invoice financing as one of our products. You can log on to earnipay.com, locate the Invoice Financing Product on the website, and click on get started. You can also book a demo for a more detailed guide on how the product works.

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