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Tuesday, September 27, 2016

Invoice financing: A great way to deal with cash flow problems

By Dan Radak

It is quite common for startups to have cash flow problems. There’s a lot spending you will have to do when starting a small business, but chances are, money won’t start flowing into your business straight away. In fact, cash flow problems are one of the most common issues startups have to deal with. A large number of business owners finds invoice financing a perfect solution for problems like this. Make sure you keep reading to find out more.

What is invoice financing?

First of all, it’s necessary to say what invoice financing actually is. It’s a process where your business can use its unpaid invoices in order to get a loan from an individual, entity or another business. There are two types of arrangements you can make when it comes to invoice financing. In the first type, invoice buyers can buy off your business invoices for a lower price. In the second type, they can buy your business invoices for a regular price but charge you according to the debtor’s credit score and due date of your invoices.

Is it a long-term strategy?

Even though many business owners see this only as a short-term strategy for obtaining enough money to keep the business going, invoice financing can also be a perfect long-term strategy for your business. A great thing about it is that it allows your business to offer your customers flexible and lengthy repayment plans without having any cash flow problems. It’s also important to mention that since this is a discrete process, your customers won’t always know that you’re using invoice financing. This means they’ll be ready to do business with you just like with any other business out there.

How does it compare to regular business loans?

It’s also important to mention that invoice loans are a better alternative to regular business loans. There are many advantages invoice financing brings. First of all, it doesn’t create any debt for your business. No debt of course means you will be able to focus on investing the profit you make instead of paying off the money you owe. Another great thing about invoice financing is that allowed amounts of money always depend on your sales figure and therefore, you can’t lead your business to bankruptcy by opting for loans that you won’t be able to repay.

Can it be used as a way of debt recovery?

There are many business owners who like to use this concept as a way to relieve their businesses from bad debt. Even though invoice financing seems like a great opportunity to get out of a debt, you should only do it when you are 100% sure you will be able to recover all the debt from your customers. When you take an invoice loan, you haven’t sold your claims, you have simply used them as a deposit and you still have to charge your invoices and pay back the amount of money that has been agreed.

Invoice financing is a great way to fund a small business that has just entered the market. Opting for invoice loans means your business won’t have any cash flow problems anymore and you will be able to focus on making profit.

About the authorDan Radak is a marketing professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he is working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies.

Images: Author owned and licensed