Discounting and factoring of invoice financing explained

eBook: 101 Guide to Financing Small Businesses

This exclusive excerpt from the soon-to-be-released Propell eBook – 101 Guide to Financing Small Businesses – explores discount and factoring options for invoice financing for SMEs.

Delivery

Invoice Funding Discount is useful for accessing cash from your unpaid invoices without having to wait weeks or months for your customers to pay. This allows you to preserve your working capital and continue your business without relying on prompt payment from customers.

What is that?

  • A type of business financing that is offered against the value of your accounts receivable ledger (invoices that you expect your customers to pay).
  • Secured by the value of your receivables, no other asset therefore needs to be offered as collateral.
  • Bill Funding helps manage cash flow by giving you access to cash before your unpaid bills are paid.

Example:

  • You have $ 30,000 in unpaid invoices awaiting payment by your customers;
  • You have to spend $ 10,000 on supplies for your next job, but you don’t have enough money available to cover this expense;
  • You choose to bridge this gap in your cash flow by purchasing invoice financing on your accounts receivable;
  • You benefit from a credit of $ 24,000, or 80% of the value of your unpaid invoices; so
  • When your customers pay your bills, the amount goes into a collection account that pays off the outstanding balance. Surplus funds are transferred to you, net of fees or interest.

Advantages:

  • You don’t have to worry about your credit score, as financing is granted based on the creditworthiness of your customers. If your customers are likely to pay their unpaid invoices, you are likely to be approved for invoice financing.
  • Funding is secured against your unpaid bills, so you don’t need to offer other assets – like your family home – as collateral.
  • You can turn your invoices into cash without waiting for your customers to pay.
  • There are no refunds to manage. Funding is repaid as your customers pay their bills.


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