How Invoice Financing Software Can Help Manage Cash Flow Discrepancies
For businesses that serve B2B customers, it’s not possible to have strong customer relationships without passing on at least some degree of credit and giving customers a few days or weeks to settle their bills. While this is a great strategy for formulating long-term obligations and gaining a competitive advantage, selling on credit can also cost the business dearly if payments are not made on time. In some cases, companies have to wait weeks or even months for their payment. This will disrupt a company’s cash flow and can cause serious problems. Small and medium-sized businesses suffer the most from restricted cash flow. In the past, bank loans and other expensive financial services were the only solutions. Today, invoice financing is a much faster, cheaper, and smarter way for businesses to fuel growth.
Invoice financing allows businesses to obtain temporary financing based on their outstanding invoices. Usually this covers 80-90% of their receivables. This gives the business quick access to the funds it needs to continue operations. the costs for on-bill financing vary by lender and the total value of the money made available. Apart from the interest on the payment, there are also fund management fees and other fees that the business has to pay. However, this is still a bargain given that the company will have instant access to almost all of the value of its unpaid invoices.
Unlike traditional loans, invoice financing does not have a set repayment period. It is generally understood that a company will collect outstanding debts within 90 days, although some companies manage well beyond this period. In case you have agreed to collect money from a client in 4 months or 6 months or even a year, you will only be required to repay the amount when you collect the money from the client, regardless of when .
Invoice financing management
One of the biggest challenges for companies when obtaining external financing is the repayment period. Large loans can span multiple years and the business must meet strict quarterly or annual requirements to stay on track. With the right invoice financing software, you don’t have to worry about refunds at all; you should only reimburse when the invoice has been paid by the customer. This means that there are no fixed-term repayments and the cost of the loan does not vary if you miss the agreed date.
The amount the business finances through invoice financing depends on the business owner. If a business has thousands of dollars in unpaid invoices, there’s no need to get $1,000 in financing. Instead, the business can choose to withdraw any amount they need and it can still be counted against their outstanding invoices. This gives the company more options and more flexibility. Where the business would need to withdraw a minimum amount with traditional loans or withdraw a fixed amount of money, however much it needs, invoice financing allows a business to take as much as it needs , when she needs it.
In a way, invoice financing removes the burden of credit invoices that a business carries. The company still has access to this money, except that it will come from a lender rather than the customer. Unlike a traditional loan which is usually withdrawn only once, with invoice financing you can obtain financing from the lender as and when the need arises. This means that a business has access to virtually unlimited funds and can distribute products or services on credit with more confidence.
Invoice financing is also usually very short term and most companies collect their outstanding invoices within 90 days. In this way, the credit payment does not have to interfere with the accounts or with the performance of the company and everything can be settled in a short period of time.
For many businesses, especially small businesses, this limitation of giving things on credit and not getting money back is often what keeps them from taking on larger projects. Especially if a large company is involved or if a high value project is undertaken. They can expect delays in the payment process, which sometimes causes them to stay away from these customers altogether. With invoice financing, business owners take back the power and can run their business with a little less worry about how they are going to get financing later.