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Small Business Bill Financing: Your Ultimate Guide

As 2020 continues to be a financially tough year for small businesses, finding ways to improve cash flow has become simply essential.

While business loans are a popular option, there may be a better solution for you if your struggle is with slow paying debtors: invoice financing.

What is invoice financing?

Bill financing is basically a line of credit that turns your unpaid bills (or accounts receivable) into financing. So instead of waiting weeks for your customers’ payments to go through, you can have access to that money ASAP.

Please note that only commercial invoices are accepted. This means that while invoice financing would not be suitable for SMEs that deal with consumers (such as retailers), it could be suitable for suppliers, wholesalers and other businesses that have business customers.

How it works?

With invoice financing, you receive part of the invoice (usually up to 85%) as soon as you have delivered your goods or services to the customer. Then, after the customer has paid for the entire product or service, the rest of the funds will be released – less any fees and charges.

As with any line of credit, this option comes with a direct debit facility, which you can tap into whenever you need to.

Patricia Kruse, senior director of business development at Scottish Pacific, says invoice financing facilities can help both the company and its customers stay afloat in today’s climate.

“The facility can help increase the company’s cash flow if some of their customers extend repayment terms during COVID. The business owner can help his own client solve their own cash flow problems by agreeing to the extended terms, ”she says.

Advantages and disadvantages of invoice financing

So is invoice financing the right option for you, or do you prefer another type of business loan? Here are some of its pros and cons to help you decide:

Advantages and disadvantages of financing invoices

What is good:

  • Quick financing: Unlike traditional business loans which can involve heaps of paperwork and debt that you would carry over into the longer term, bill financing is a short-term cash flow solution. It’s a faster way for businesses to access additional financing (in as little as 24-48 hours), which they then typically pay off in 30-90 days with money already owed to them.
  • Low risk: Since this financing option is secured against your bills, you won’t have to worry about losing a valuable asset like your family home in the event of default.
  • No repayment stress: Since your debt is settled once your bill is paid, there is no pressure to make regular repayments, giving you a little more leeway.
  • Flexible installation: Instead of receiving a one-time lump sum, your invoice finance facility grows with your business. As your sales and income increase, so does the level of funding you can access. Kruse says that for this reason, “invoice financing facilities will become increasingly important as the business moves from survival mode to growth.”

To watch:

  • Lack of confidentiality: Your accounts receivable are transferred to your commercial lender who will then generally contact your accounts receivable about the new arrangement. While this may save you time (since you no longer have to collect payments yourself), it does mean that your bill financing facility may be disclosed to your debtors. However, if you are concerned that it will affect your relationship with clients, some lenders like Scottish Pacific also offer undisclosed facilities to address those concerns.
  • Higher costs: Bill financing can be a more expensive option than traditional bank loans, with a fee (either a flat fee or a percentage based fee) charged on top of each bill. That’s why, “it’s important to look for the best deal,” as Kruse puts it. But the caveat here is that different lenders may have different fee structures, which can make it difficult to compare prices.
  • Seasonal impacts: If you’re a seasonal business that sources supplies during off-peak times, invoice financing may not offer much benefit. Kruse explains that “unpaid bills are likely to decrease during any seasonal contraction, which means the amount that can be financed will also decrease.” However, you can get around this problem by considering another type of financing, such as a business facility or a short-term business loan.

Is my business eligible?

Generally speaking, invoice financing is not difficult to obtain, provided you can tick a few boxes. Unlike traditional business loans, your credit score, loan history, and collateral do not play a major role in determining your eligibility.

“Businesses of all sizes and levels can easily be approved. The most important condition for approval is the creditworthiness of your customers, ”explains Kruse.

Indeed, the reimbursement depends entirely on the respect of the payment deadlines by your customer.

To be eligible for invoice financing, Kruse says you also need to make sure:

  • You are a business selling to other businesses (i.e. B2B)
  • You sell products or services to other businesses on credit
  • Your invoices are issued for the performance of a service or the delivery of goods

What happens if my customer does not pay their invoice?

It really depends on your agreement with your lender. In some cases, the responsibility for handling bad debts and paying those bills may still lie with you. But there are also providers who will cover the costs for you or allow you to swap the invoice with one of equal value. Others may let you choose whether or not you want to take responsibility for a potential defect.

Just keep in mind that if you want to be protected in the event of default, the fees will naturally be higher because there is more risk to the lender.

Your invoice financing options

Ready to apply? Check out some notable options below:

Financing of the Waddle invoice
  • Funding from $ 10,000 to $ 4 million
  • Same day approval
  • Funding within 48 hours of approval

Waddle offers invoice financing that integrates with your accounting platform, giving you a real-time credit limit based on the value of your unpaid invoices. It allows you to access up to 80% of the money owed to you in unpaid invoices, with up to $ 4 million in funding available to qualifying businesses.

To be eligible, your business must be incorporated, have been in business for more than 6 months, issue invoices to other Australian companies only when work is complete, and currently have at least $ 10,000 in unpaid invoices. The prices are personalized according to the profile of your company, your sector of activity and the size of your establishment. Upfront fees and transaction fees will also apply.

Scottish Pacific invoice financing
  • Funding from $ 10,000 to $ 150 million
  • No ongoing charges
  • Same day approval

Scottish Pacific takes catering to businesses large and small seriously, which is why with its bill-based financing, its facilities can range from $ 10,000 to $ 150 million. While there are upfront costs to be expected, you won’t have to worry about ongoing charges. The application process is also super fast – just 10 minutes out of your busy workday, and you could be approved the same day and receive up to 95% of your approved value (minus fees) a day later. You have the choice to apply online or by phone.

Funding byte bills
  • Funding of $ 100,000 to $ 10 million
  • Fast approval in 24 hours
  • 85% of your prepaid bills

Octet’s bill financing scores high in flexibility, with facilities that can hold funding between $ 100,000 and $ 10 million, depending on your business needs and your financial situation. Octet says companies only need two minutes to apply online and wait 24 hours for a response. Once approved, 85% of your bills will be paid to you within 24-48 hours – an almost instant cash flow increase.

To qualify for Byte invoice financing, your business should ideally have traded for 1 to 2 years and earn at least $ 1 million per year. There are also administration fees and ongoing service fees which are calculated as a percentage of invoices processed.

Timelio invoice financing
  • Funding from $ 10,000 to $ 100 million
  • Accepts international invoices
  • 10 minute applications

Timelio understands that one size doesn’t fit all. Thus, with its invoice financing, it offers personalized rates as well as facilities ranging from $ 10,000 to $ 100 million to meet different sizes and business objectives. But that’s not all: if you export, Timelio can finance up to 90% of your bills abroad.

With Timelio, there is no minimum turnover requirement; you will just need to have a minimum invoice size of $ 10,000 with clients who are large corporations, government agencies, or who are insured. Online applications should only take 10 minutes and approval can take place in 24 hours. Keep in mind that there are transaction fees for each funded invoice, as well as remittance fees paid to Timelio investors which are calculated daily.

For more business financing options, visit our business loan comparison chart.

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