Funding Your Business with Invoice Finance or Factoring

Funding Your Business with Invoice Finance or Factoring
Funding Your Business with Invoice Finance or Factoring
September 28, 2016

Businesses are beginning to explore other forms of financing to grow since the chances of obtaining bank loans decreased. One of the financing options that has been given a shot by some businesses is the invoice finance. This form of funding has longer history with some nations than the others.

Invoice financing is an emerging form of financing

Invoice financing is a new form of financing for New Zealand. Only recently did businesses begin to give it a try. However, this same source of funding has enjoyed a worldwide patronage across different countries of the world as one of the oldest form of business financing.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

In invoice financing, debtors repay the overdraft

The working principle of invoice financing is very simple. Every business has debtors but in invoice financing, the debtors are converted to cash which is paid to the company in the form of overdraft. The overdraft is then repaid by the company’s debtors. When the first overdraft has been paid, another can be drawn up.

Invoice financing makes cash flow incessant

Debts can often be a clog in the wheel of businesses particularly the not so big ones that are not financially stable. When the debt becomes too large, the amount of money available in the business becomes limited and sometimes, the business may find it difficult to pay her staff which will ultimately lead to a low spirit among the workers. Their output will become diminished all together.

There are many reasons to choose invoice financing

In the world of financing were most of the lending houses would require one collateral or the other, it is a great relief to find a lending form that has other means of accessing your business besides the size of your assets. There are a good number of reasons one should stick with invoice financing and they are as follows;

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

1. Funding is determined by your sales

In other funding sources, the amount of fund you can access is usually based on some factors which will need to be reviewed at intervals. Here, your sales determine your funding.

2. Debtors are your security

In other cases, the security is usually collateral which means you can be denied access to funds if you do not have enough collateral. In invoice financing on the other hand, your debtors are your security and no external property would be required.

3. Can be combined with other forms of financing

The terms in the traditional financing may make it impossible for you to take up other loans but the invoice financing have no such restrictions and therefore you can easily combine it with other forms of financing.

Read also: What You Never Knew about the Small Business Administration Loans

4. No traditional overdraft restrictions

The overdraft you will get from invoice financing is not bound to as much restrictions as there are with the traditional overdraft giving you some air of freedom and a better sense of ownership of the fund.

5. You can get more funding than with other financial products

When traditional financing houses wants to offer you a loan or funding, they will first evaluate the business and will normally draw a line on the amount of money you can access. This is not so with invoice financing which gives you access to more money.

Invoice financing finances trillions of dollars annually around the globe

Invoice financing will naturally give your business the cash advantage to make sure you are not cash strapped. As a budding business, this is one financing you should not fail to give a try.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Bank loans are no longer easy to come by.
  • Invoice financing is a new financing alternative in New Zealand.
  • Debts are converted to overdrafts in invoice financing.
  • Debts can reduce the amount of cash available to a business.
  • Collateral is not needed in invoice financing.
  • The volume of your sale will determine the amount of funding you will get.
  • Invoice financing can be combined with other forms of loans.
  • Your debtors will provide your security.
  • You will have access to more funding with invoice financing.
  • Budding businesses should give invoice financing a try.

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