Similar to big enterprises, small business units demand consistent cash flow to main inventory, manage supply chains and make payments. Working capital deficiencies can potentially hamper the flow and profitability of small businesses.
In such cases, funding facilities like invoice financing acts as a boon for a small business, which helps these units in getting cash to maintain day-day operations. Invoice financing, also known as accounts receivable financing or receivable financing, enables small businesses to borrow money against the payment receipts due from customers.
These funding facilities resolve issues associated with customers delaying payments and difficulties availing other types of business credit. Read on to better understand the benefits of Invoice financing for small businesses.
Benefits of invoice financing for small business
- Immediate cash flow
Invoice financing speeds up the growth of small business as these units do not have to wait for 30-90 days for the invoice payments. Owners of small businesses can sell the invoices and can effectively maintain cash flow by converting the outstanding invoices into cash.
- Convenient financing solution
Invoice financing is by far one of the most convenient funding solutions to raise capital for small business. Small units can utilise their potential by liquidating invoices into cash and avail financing as per the business demand, such as inventory financing. Unlike traditional funding facilities, Invoice financing does not involve checking balance sheets or any of the features related to traditional loans. Small businesses can use their unpaid invoices at any time to meet short-term expenses.
- Easy repayment
Invoice financing relieves small businesses from the burden of monthly interest. Through this flexible financing solution, small business owners can choose to make bullet payment at their convenience.
- Bigger opportunities
Irregular cash flow disrupts business operations. At times, small businesses owners have to let go of the bigger opportunities due to lack of infrastructure, inventory, etc. In such cases, entrepreneurs asking how to get small business finance can get effective solution from invoice financing. Small businesses thus can get inventory financing and accept bigger projects instead of chasing business debtors.
- Fast approval
One of the major beneficial features of invoice financing is its quick approval. Small businesses need not wait long to get this fund. However, while traditional banks fear providing funds to firms without collateral, financial institutions like Bajaj Finserv offer quick unsecured business loans at an affordable interest rate.
These NBFCs provides pre-approved offers to make the loan-available process fast and hassle-free. These pre-approved offers extended to other financial products like business loans, personal loans, etc. Individuals can check their pre-approved offers by submitting name and contact details.
- Efficient handling of bad debts or late payments
With invoice factoring, a small business can hand over their invoice or ledger to the factoring company. As the factoring companies take charges of collecting and following up the payment, small businesses can easily get rid of the burden.
Small business faces constant trouble in maintaining cash flow. However, with the support of Invoice financing, a small business can now release locked cash quickly and improve cash flow effectively.
Invoice financing is primarily of 2 different types, namely invoice or bill discounting and invoice factoring. In invoice or bill discounting, a business gets full control of the invoice against which the fund is provided. In other words, the businessperson has to collect the outstanding amount from the customers before repaying the lender/service provider.
In invoice factoring, businesspersons have to surrender control of the outstanding invoice to the service provider. Unlike invoice or bill financing, here, the lender is responsible for collecting dues from customers.
Through this funding facility, the financer usually pays a certain percentage of the outstanding amount ranging from 70-90%.