What is invoice financing and is it right for your small business?
Improving cash flow is a priority for many small businesses. Fortunately, small business owners have options and can choose to use invoice financing with businesses. According Investopedia, invoice financing is a financing option that serves as a cash advance against an invoice. It is a loan and it comes with fees and interest rates.
Invoice financing helps increase cash flow. While you wait for your customers and customers to pay you directly, you can get a cash advance on the invoice, usually up to 90%. Invoices are also collateral, which proves to lending companies that you have the means to complete the loan.
The Benefits of Invoice Financing
Is invoice financing right for you? Not every small business depends on this type of cash flow because it has its downsides. However, the pros can easily outweigh the cons, depending on the stability of your client’s payments.
Invoice financing is very advantageous for businesses and inter-company firms. Usually, businesses pay themselves through invoices, but an unpaid invoice can hurt a small business’ cash flow. Having cash on hand can make buying inventory and paying employees easier for small business owners.
Another advantage of using invoice financing practices for your small business is that they are quick to finance. Instead of waiting for a business loan, which can take months to fund, most invoice finance companies can send funds in 24 hours or less after approval.
The costs associated with bill financing
Bill financing isn’t free, but it can still be helpful. Since this is a loan or a line of credit, you will have to pay fees and interest on the loan. Usually, interest rates on invoice finance are between 1-5%. However, you can spend up to 79% APR interest on the entire loan.
Is it good for your organization?
Invoice financing can make or break a business if you’re not careful enough. It is crucial to determine the status of your business. Do you regularly run out of cash? Are you a B2B business? Experts do not recommend invoice financing for business-to-consumer transactions because funds are immediate and rarely require invoices.
However, it is not enough to receive invoices. You can find yourself in hot water with a high APR if your customers don’t pay on time or frequently. Although it is common to spend 1% interest per month, this number increases steadily throughout the financing.
5 Great Bill Finance Companies
Below are five examples of excellent invoice finance companies, along with each of their pros and cons.
You can receive your funding in just 24 hours after approval using altLINE. This bill finance company is a very reliable lender and operates as a branch of Southern Bank.
The only downside associated with altLINE is that funding starts at a minimum income of $15,000. For small businesses that are starting up and not earning enough revenue, this could be a lucrative option.
2. TCI Business
TCI Company is a reliable finance company with a quick turnaround and strong communication. This company offers free customer credit checks, which can be beneficial for small businesses.
While there are strong upsides to using TCI Business as a billing finance company, the funding time is longer than most. It can take up to three days for the funds to arrive in your account and the minimum income your business needs is $50,000.
3. Financial RTS
RTS Financial focuses primarily on the freight and trucking industry, but finances a range of clients. A fundamental strength to consider is that RTS Financial has the best easy-to-use all-purpose application. You can finance up to 97% of a bill as a small business owner.
There are a few downsides to consider with RTS Financial. The company has been around since 1995 and is not as old as others in the same field.
FundBox is a little more restrictive than the other options on this list. One of the biggest selling points for small businesses is that they can fund the full value of their invoices in as little as 24 hours. There are no financing fees, and the fees are fixed. You won’t have any surprises!
Keep in mind that FundBox is stricter and loan terms range from 12 weeks to 24 weeks. It would be best if you also have a minimum credit score of 600.
5. Paragon Financial
Paragon Financial is another bill finance company that starts at low rates at 1.25%. Paragon Financial works with companies with low credit or tax issues to increase their cash flow.
A scam with Paragon Financial requires the business to have a minimum income of $30,000, which can be difficult for new small businesses.
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