There are many reasons why businesses need additional capital. Whether it is to fund growth; keep the cash flowing; or to make necessary improvements, business leaders should be aware that there are more options available than just a traditional bank loan. An alternative form of lending is known as invoice funding – a general term used to describe services and products that allow companies to finance slow-paying accounts receivable. In other words, businesses can borrow money against the amounts due from customers.
Whilst securing finance from the bank can often be a long and difficult process, invoice financing can be a viable alternative, particularly for smaller businesses. So here we have put together 7 reasons why invoice financing could be a better option for you.
Banks can take a long time to make a lending decision and process a loan. Several months in fact, and this is mainly due to the requirements and paperwork involved. So, it is not necessarily the right option if you are looking for an immediate cash injection.
Invoice finance, on the other hand, is a relatively quick process which can be turned around in a day or two, via an online application. In this scenario funds can be released almost immediately, allowing your business to get the quick access to cash it needs.
A disadvantage of traditional loans is the inflexibility. You must be able to calculate accurately how much money you will require. Otherwise, you could easily end up with not enough capital to cover your business needs. Or too much of a lump sum, incurring interest or resulting in penalties for early repayment.
Invoice finance can offer so much more flexibility. By borrowing against your invoices, you can achieve a greater level of borrowing. Basically, the more you bill the more cash you can access. This is a facility that grows as you grow without having to make new credit applications.
To secure a bank loan you may be asked for collateral, possibly in the form of personal assets. However, because invoice finance releases the capital of future invoices, there is less risk because no debt is created.
With fees of only 1.5%-2.5% per invoice and no setup or hidden fees, invoice finance can become a great go-to solution when needing that extra cash boost. Some providers also allow you to finance individual invoices with no long-term contracts or commitments. There is less risk than traditional borrowing because you only use it when you need it and only pay for the invoices that you finance
So, with invoice financing you’re only borrowing money you have already earned. You won’t have the burden of accumulating debt or the worry about increasing the liabilities of your business.
If you can’t qualify for traditional loans, you may still be able to access funding from invoice finance. This kind of lending is often a more convenient option for small or middle-sized businesses that could experience real negative impact from late payments or long payment terms.
No matter what business you’re in, access to extra cash immediately can only be a good thing. You can put the money to good use straight away by paying your suppliers, increasing your production, or settling all your financial invoices on time. It’s a simple solution to growing your business faster and stronger and without creating debt.
Unlike a traditional loan, invoice funding can often include services that help reduce costs and add value. Many factoring or financing providers complete credit checks, determine credit limits, chase invoices, and collect payments, freeing up your time to make money rather than chase money.
By taking on the credit control process this could be a more valuable option, saving you time and reducing your administration costs. Always be sure to check that your provider doesn’t charge any hidden service fees that will drive up the cost.
Banks loans have a maximum amount that can be borrowed. Once you’ve reached the limit, you’ll have to go through the application process all over again if you need additional funds.
If you qualify, an invoice financing company can give you unlimited capital, making the amount of cash available through invoice factoring directly related to your sales volume. The more sales you close, the more invoices you’ll be able to factor. So, when a big opportunity comes your way, that requires cash up front, you’ll be able to take it on without worry.
One of the main reasons small businesses opt for invoice funding services over traditional lending is because they are growing. Cash flow drives growth. Invoice finance speeds up cash flow allowing businesses to cover their expenses (like payroll, buying in bulk, or expanding operations) and take advantage of more opportunities to help the business grow and profit.
Is invoice finance the better choice?
If you’re looking for an option that is speedy, flexible, and low in risk then invoice finance will be the best option for you. It is designed for businesses that want to bridge the gap between invoicing for work and getting paid. It is a great way to manage day-to-day costs by taking the stress out of waiting for payments. A traditional business loan, on the other hand, is better suited to businesses that require a larger lump sum of funding for perhaps more ambitions plans or substantial changes.
If you’re still uncertain what’s right for your business, then speak to one of our experts today. At we will be happy to discuss the difference between a bank loan and invoice finance, as well as what we could do for your business.