Why flexible invoice financing is better for small business owners
Invoice financing is a great option for businesses to receive short-term cash flow solutions. However, some invoice financing companies may only offer contract financing, an arrangement where a business effectively sells their entire receivables to the financing company for the stipulated term. On the other hand, flexible invoice financing is an arrangement where a business can effectively engage in a pay-as-you-use basis. The business chooses to discount individual or a batch of invoices, entirely dependent on the need of the business.
We at Populous World believe contract financing should not be the solution for all businesses. This is especially true for a small business which only needs a little help with their cash flow. However, a lot of invoice financing companies that offer only contract financing will offer a significantly lower discount fee. In return, the small business will have to enter into a contractual agreement of 12 months or more, with miscellaneous fees included.
An illustration of the above scenario can be seen in the breakdown below:
Table 1: Amount receivable after fees: £4,800
Table 2: Amount receivable after fees: £4,734.50
As seen from the table above, by using flexible invoice financing, a small business owner will receive £4,800 from a £5,000 invoice with Populous World’s flexible invoice financing option.
However, if the small business were to engage in a contract financing, the business would be potentially worst off, receiving only £4,734.50.
Small businesses should be wary that while the discount fees quoted are attractive, the contractual fees included could add up, making the invoice financing costlier than it should be. Unlike us at Populous World, our fees quoted for both flexible financing and contractual financing are the only fees levied by us, where businesses do not have to worry about miscellaneous fees.
We implore businesses to explore the right invoice financing method to ensure they have the most suitable facility.
Alternatively, you can contact Alex Oritogun at [email protected] for a bespoke facility tailored towards the needs of your business.