Do you need cash for your business? Instead of running to the bank for a loan, consider invoice financing or invoice factoring as an alternative instead. These credit models allow you to leverage credit from lenders. You use the outstanding balance owed to you by creditors to secure the loan. It’s an attractive means of drawing capital into your business, without exposing your business assets to much risk.
Invoice Financing Explained
Does your business extend credit to your customers? If so, invoice financing offers you the ability to use 30 to 90-day supplier accounts as proof to guarantee a loan. The lender bases the credit on the outstanding amount due to you.
Most lenders will be happy to provide you with a loan for up to 85-per cent of the invoice value. When the creditor pays you, you settle the loan amount.
Invoice Factoring Explained
This model is similar in the loan terms to invoice financing. The critical difference in this model is that you sell the invoices to the lender. The third party will then collect the outstanding creditor debt. This model allows you to benefit from the loan while reducing the need to chase your creditors.
Invoice Financing Vs. Invoice Factoring
Invoice factoring will require you to use all of your outstanding invoices to secure funding. Invoice financing allows you to select which invoices you want to finance in the deal. Therefore, invoice financing offers better flexibility.
Due to the nature of invoice factoring, you can consider this model as a means of establishing a revolving credit facility. With invoice financing, you choose when and where you want to use the credit facility. You aren’t forced to create a continuous line of credit.
Invoice financing models won’t chase your creditors for you. Invoice factoring comes with a creditor management system incorporated into the model. Therefore, invoice financing keeps your financing issues confidential. Invoice factoring exposes your company’s financial affairs to creditors.
Selecting The Best Financing Model For Your Business
Small businesses will benefit most from invoice factoring. Companies in the early stages of the business cycle may be pushed around by their creditors. A lack of reputation or clout in the market makes them easy targets.
On the contrary, invoice financing suits established companies that have in-house debt collection departments. Either model will produce the result you require. They allow you to raise capital when you need it using the outstanding money. Select the model that suits your business and get the funding you need.
Wrapping Up – Why Do You Require Financing?
If your business is experiencing rapid growth, invoice factoring is the best option for you. It allows you to commit to a long-term contract and the lender takes care of your creditor management. With the pressure of collection removed from your business, you’re able to focus on other areas of your business.
If you only require credit on occasion, invoice financing is the ideal model. Choose what you want to finance and when. This model gives you more freedom with your financing decisions. If you would like to learn more; the details found here will give you further insight.
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