Sometimes called accounts receivable financing, invoice financing allows businesses to borrow money despite the money owed to them by customers. This gives businesses a chance to borrow while not having to wait for customers to pay balances in full. Invoice financing frees up time to increase cash flow and invest in growth that you wouldn’t have if you had to wait for customer payments.
Up to 100% of Invoice Value
Until Your Customer Pays the Invoice
8 to 30%
As FaaS as 1 day
How Does Invoice Financing Work?
Invoice financing gives you a cash advance and uses your accounts receivable as collateral. Your accounts receivable is the invoices waiting for payment by your customers. With this form of short-term borrowing, you can sell your accounts receivable in order to receive immediate funds that can be used for other expenses.
One of the most frustrating factors of business ownership is waiting for payment. Many businesses use credit to sell to large customers or clients through invoices, but using invoicing can mean that funds get tied up when you need them most. A delay in payment can mean a delay in funds needed for other things.
At FaaSfunds, we understand this is a common problem for business owners. In order to help businesses with unpaid invoices, we offer invoice financing in our marketplace. By signing up, we’ll analyze your business needs and see if it’s the best option for you.
Pros & Cons
Pros of Invoice Financing
- Based on the credit of the invoiced company, not your own
- Don’t need to wait on invoice payment
- The invoice serves as collateral
Cons of Invoice Financing
- Can sometimes have fees higher than traditional financing
- Fees are based on the time of invoice payoff term
- Higher-risk for lenders
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Who Qualifies for Invoice Financing?
Companies with a business-to-business model of financing and with outstanding receivables can qualify. The receivables act as the loan’s collateral, so instead of worrying about your business finances, lenders are more worried about if the invoices make sense for them to finance. However, some lenders may take your credit score into account as well.
The maximum funds you can qualify for depends on how many invoices you have and their credit.
How Do You Apply Invoice Financing?
Understandably, your business invoices are the most important part of invoice financing. Many lenders have online applications that allow you to directly connect your business’s accounting program. This makes the process easy to move forward with, without any complicated paperwork.
What You're Going to Need:
- Driver’s License
- Voided Business Check
- Bank Statements
- Credit Score
- Outstanding Invoice
What else should you know about Invoice Financing?
Invoice financing works best for businesses with outstanding balances from customers. The fundamentals you should know are:
- Invoice financers give your business cash for your unpaid invoices.
- This gives your business more cash to use in the meantime.
- Lenders use the invoices as collateral, so no other collateral is needed.
- Lenders look more into the credit of the invoices they’re financing than that of your business.
How Can Invoice Financing Help?
Invoice Financing guarantees that you’ll see the money for your unpaid invoices right away. This helps to give a more predictable cash flow to fund your monthly operations. If your business is short on capital, invoice financing can provide a quick way to access cash that you’re waiting for.
Not sure if Invoice Financing is right for you?
Let us walk you through your options and help you decide which program is right for you.
How Much Will Invoice Financing Cost?
Invoice financing can be expensive, but it’s a service fee for having the cash accessible now rather than later.
- Financers typically advance 85% of the invoice and keep 15% in reserve, subject to fees until the invoice is paid by the customer.
- They’ll also often charge a processing fee on the 15% in reserve, often around 3%.
- Lenders will usually charge a fee for every week your customers don’t pay, often around 1% per week.
- So afterward, when the customer pays, you receive that 15% minus the fees. These fees, essentially, are convenience fees.
Some financiers will give you 100% of your invoices, but you must pay them back over a term, often 12 weeks. By doing things this way, your business doesn’t wait for the customer to pay their debt, but they’ll often collect directly from your customer instead.
In invoice factoring, the notable difference is that the financer is purchasing your invoices completely and they collect from your customer directly on your behalf.
$1,400 could be a lot for your business, but it’s about how quickly you need the money. If you need to pay your utility fees but are still waiting for invoices, it could be worth it.
Our FaaSfunds financing experts provide you with the latest industry knowledge to keep you in the know.
Let one of our FaaSfunds financial experts help lead you through the process and guide you down the best path for your business financing needs.