How Invoice Financing Helps Prevent Cash Flow Gap for Businesses

Managing cash flow in the early stages of a business is often a challenge. Poor cash flow management can easily bring any business down. To prevent cash flow gap, businesses utilize invoice finance to deliver needed cash injections. This levels of cash flow and allows them to proceed with regular business operations and expand.  

What is Invoice Financing?

In a usual business operation, there are often times when there is an enormous cash flow gap between spending money on the project and receiving payment for it. In this instance, invoice financing provides the cash needed based on the sales ledger.

There are two types of invoice financing - invoice discounting and invoice factoring. The primary difference is in credit control where invoice discounting permits you to control your credit and invoice factoring manages your credit on your behalf.  

• Invoice discounting

Invoice discounting enables a business to maintain control over the sales ledger and therefore, the service is ‘confidential’ from your customers.  Furthermore, the agreements are way more versatile compared to invoice factoring. You could generally choose either whole invoice discounting or selective invoice discounting.

• Invoice factoring

Invoice factoring is normally used by startup companies who may not have an existing credit collection procedure.  The factoring firm will often take control over the responsibility for the sales ledger. They also take on the responsibility of getting payment from your clients; normally the service is disclosed to clients so that they will be informed that invoice payments are directed to a factoring firm.

How The Invoice Finance Prevent Cash Flow Gap

Invoice finance can add value to your company in circumstances as follows:

• Where business is under cash-flow pressure

• When the business is struggling to pay suppliers on time

• In times where there are unfavorable payment conditions enforced by primary customers

• When the business is seeking added seed money financing

• Where the company is planning a 'Management by Objectives' type of management model

• When the business is planning to acquire other businesses

• In times when the company is considering outsourcing its credit control and payroll functions

• If your company is currently factoring/invoice discounting, however, considering the need for a reasonably competitive option

What can invoice finance do for your business?

• Allows seed money to grow consistent with sales

• Offers financial headroom providing higher financial versatility

• Can offer to fund separate from core banking, therefore, keeping bank credit services

• Security sits upon your sales invoices. Frequently used as an option to overdrafts or loans which often need further background security, which is not at all times accessible

• Minimizes risks as well as management problems

• Credit rating checks accessible to reduce trading risk and provides reassurance

• Because client invoices are usually considered by loan companies as a sensible security on a ‘stand-alone’ foundation, continuing financing can also be obtained in an ‘Asset Based Lending’ bundle complimented by 'Asset Finance' and 'Trade Finance'

• These ‘working capital’ services can be found in a number of alternatives and can usually be customized to satisfy the conditions and requirements of a particular business

There are various kinds of funding solutions for developing companies who require assistance in handling their cash flow. Invoice financing is created to match the changing requirements of developing companies primarily the business in the service sector.