Businesses often find that their customers do not pay for their goods or services within the standard 30–90 days after the invoices are issued. Most commonly, it can at times take as long as 180 days afterwards. This funding gap is one of the biggest challenges small businesses face and the late payment of invoices can cause significant cash flow disruptions to run day-to-day operations, pay staff and overheads, or growing the business to fulfil larger orders and new contracts.
Invoice factoring is a form of funding often perceived as a business tool that is only meant for high-end or large companies. However, if you take a wider stance of invoice factoring, it can be identified that the method can accommodate each and every type of business, whether small or large. Furthermore, its scope stretches across various industries and domains, signifying that invoice factoring is an unrealised profitable business tool that releases immediate working capital against a company’s unsettled invoices, as a result of slow-paying customers.
Invoice factoring vs bank loans
Businesses naturally gravitate to the banks and short-term business loans are one of the most traditional routes to finance available and frequently the option that business owners consider first, but often there are finance barriers that come with its lending terms.
Most entrepreneurs are not aware that they can sell their accounts receivables in exchange for immediate payment. However, invoice factoring is an alternative funding solution now commonly adopted by various business sectors and serves a very simple, but critical, purpose: it reduces the time between providing a service (or selling a product) and getting paid. This strategy improves your cash flow and allows you to meet expenses and furthermore, grow your business.
This type of funding is flexible and does not have the qualification requirements of a conventional bank loan. These aspects of accounts receivable financing abundantly appeal to SMEs with great potential but without a lot of tangible assets. Bank loans, however, can be expensive and inflexible as the business borrows a lump sum that has been agreed with the bank. It may subsequently become apparent that not all of the loan is required or that the business needed more than it initially thought.
Invoice factoring is a great alternative to traditional banks to boost your working capital and cash flow. One of the considerable attractions of invoice factoring is that it gives businesses access to funds as soon as the invoice is raised by releasing around 90% of the value of the invoice.
Invoice factoring services for small businesses has many rewarding benefits, which helps entrepreneurs to acquire fundamental working capital for optimal company growth and expansion, especially for businesses that require a steady cash flow.
Some of the inherent benefits of invoice factoring include quick and simple access to cash, reducing the risk of late payments and bad debts, affordable factoring fees, and flexible financing terms. Most SMEs choose to sell their invoices on a regular basis, thereby improving cash flow, providing predictability, and strengthening their position to take on new opportunities.
Populous World provides industry-expert invoice finance services and can unlock cash in as quickly as 24 hours, your business can release up to 95% of the value of your invoices.
For more information or to speak to one of our funding specialists, contact: [email protected]