Invoice Funding: A Clever Business Financing Option for Small Companies

invoice_funding_2Invoice funding is utilized by many leading companies to generate capital quickly and easily. It is a great financing option. It doesn’t require companies to beg for a bank loan. The amount of years they have been in business is inconsequential, so is their credit score. Companies are able to use their customer’s credit histories to raise capital for their business.

If a company has customers with good to excellent credit that owe them money, they can utilize this working relationship and any outstanding invoices to their financial advantage. This is a very clever financing option because it utilizes the work that a company has already done (and money owed) to generate capital right away. It is not necessary for companies to wait months for monies owed to them. Instead, they can receive it in a matter of days.

Invoice funding

This is extremely creative and very beneficial for the companies that utilize it. A great percentage of business that bills their customers via invoices will quality. They only need to find a Factor to work with. Factors are companies in search of quality invoices. They purchase them at discounted rates, collect them and then return all monies minus their fees. As well as any funds that went toward the original purchase of the invoice, to the company they bought them from.

General purchase for invoices is about 70% to 90% of their total value. While a company may originally take a hit financially, there are a number of noted benefits. The standard waiting time for invoice payments is 30 to 90 days. However, instead of waiting for such a period of time, they can receive money within in a matter of days.

For some companies, waiting up to three months to receive payment for work they have already done is simply not an option. They may be cash poor, making it difficult, if not impossible, to cover their fixed expenses. Not to mention pay employees, fund jobs and advertise for future business. Companies in this sort of predicament may be willing to initially accept a discounted rate for their invoices in exchange for fast cash. Also, because they will eventually receive the remaining portion of the invoice, it really isn’t a huge deal.

As mentioned, even though the initial purchase price of the invoice is less than its full value, companies will receive the remaining amount after the Factor has collected all of the invoices. They will then pay back all of the money they have collected, minus the agreed upon fees arranged between them and the company they bought the invoices from. They will also withhold the 70% to 90% they already paid for the invoice.

Another option, which is closely related to invoice funding, is PO funding (purchase order financing). The latter involves a Factor purchasing the materials that a company needs to fulfill a contracted order. After the company has received the materials, manufactured the product, sold it and is paid, they share a portion of the profits with the Factor. Both are excellent options and generate what is needed. As a result, the company can continue to stay in business or meet their obligations.

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