Running a business comes with different kinds of challenges. One of the challenges many SMEs face today is the delay in customer invoice payment, which affects cash flow. A 2020 survey on MSMEs in Nigeria conducted by PwC suggested that 75% of small businesses in Nigeria get affected by delayed payment for about 60 days after delivering products/services to private sector clients in Nigeria.
Many times delayed invoice payment result in delayed business operations. Many businesses depend on the payment they get from the supplies of their products or services to their clients to make up for their business capital. So, they easily get affected when the payment for their products and services gets delayed. They might be unable to sort out some of their necessary business activities and bills, such as their employees’ payroll, equipment maintenance, and other essential business logistics. Businesses’ cash flow and revenue are severely affected by this challenge.
Since this is a recognized challenge facing businesses in Nigeria, what is the possible way out?
Introducing Invoice Financing
Invoice financing is a type of financing offered to business owners in the form of a loan where unpaid invoices are used as collateral. That is, businesses can access funds from their outstanding invoices.
As a business owner, most times, you’ll have to supply your goods to your customers on credit. Then you issue them an invoice which they are to pay at a scheduled time. Sometimes, the wait time for the customers to meet their end of the deal takes a long time and can deter your business activities. Invoice financing is a solution to that problem. With invoice financing, you do not have to wait until your customer pays the invoice before going on with other business activities. That is, cash flow is guaranteed.
Invoice financing service providers like Earnipay offer the business owners 80% of the payment required by the customer, as stated on the invoice. That is, if a service costs ₦20 million, instead of you to wait until your customer pays the bill, you can access ₦16 million from the payment as early as 24-48 hours after your invoice has been submitted. This way, you do not have to take traditional loans to make up for your capital in the expectance of the payment of your invoice by your customers.
How does invoice financing work?
With invoice financing, the service provider pays you a certain percentage of your unpaid invoice. If a service provider offers you 80% of the amount on your invoice, you get that 80% even before your customer pays the invoice. For instance, you supplied Mr. A with 50 cartons of biscuits costing ₦500,000, and the invoice expects Mr. A to pay the ₦500,000 in 30 days. You do not have to wait 30 days before accessing the ₦500,000 Mr. A is bound to pay. Your service provider will give you ₦400,000, which is 80% of the total amount on the invoice. With this money, you can continue your business activities with no delay.
When your customer pays the invoice, the invoice financing service provider takes a percentage (usually 1% – 5%) from the amount on the invoice as a service charge and remits the remaining percentage of your money to you.
Steps to follow in signing up for an invoice financing service
- Choose an invoice financing service provider: When choosing an invoice financing service provider; you must check if their service offerings align with your business goals. For instance, the service charge of some service providers might run your business at a loss. Earnipay’s Invoice Financing product only charges 1% to 5% of your invoice, which is an excellent offer.
- Sign up on their website: The next step is to provide the required details to sign up for the product after deciding which service provider you want.
- Provide necessary information and documentation and wait for approval: After signup, you must provide some information for background and credit checks. The required documents may include bank statements, audited reports, and other financial documents. The service provider will review your submitted documents and check if you can use the service. If you are eligible, you will receive approval from the invoice financing service provider.
- Submit your invoice: After you are successful with the onboarding process, you can now submit your invoice for financing.
- Receive funding: After your invoice financing request has been approved, you will receive the funding from your invoice financing service providers. The funding will be a percentage of the total amount on the invoice. Earnipay offers 80% of the amount on your invoice, allowing you to pay your vendors, pay your workers, and attend other business activities.
- Collect your payment and repay your lender: When your customer pays, you can receive the remaining funds after your service provider has deducted the funds they made available to you earlier. Your service provider will also deduct a percentage, usually between 1% and 5%, for their service charge.
Take Home
Businesses will thrive better if they have better access to capital to run their business. For this reason, businesses might not be able to wait for as long as it takes their customers to pay for the products/services they have already rendered to be able to run their business. Invoice financing is a way out.
With Earnipay, you can get 80% of the funds on your invoice within 24-48 hours after submitting your invoice. With this, you have access to capital to keep your business running. Log on to earnipay.com today to get started!
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