How Can Loanable help me with Invoice Financing?
Invoice financing is a good way not just for a company to get cash they need, but also can help with slow paying clients and customers. The company does not have to wait for payment, they can simply borrow against the future payments or invoices.
Invoice financing is a form of asset-based lending/borrowing, in which assets (invoices), can be sold, or pledged for a loan. They can even be used to set-up lines of credit based on a percentage of their value.
There are three (3) types of invoice financing:
Invoice Factoring: Invoice Factoring allows your company to access 85% of the total outstanding invoices or money that is owed to you.
This is different than Invoice Discounting as the lender takes control and ownership of your “credit control” and the bank or lender then make sure that any outstanding invoices owed your company are paid on time.
You are saved time and money, as you/the business, no longer has to chase-up payments.
This type of invoice financing does not charge an interest rate, as the lender or “factoring company” is in essence buying your invoices at a reduced or discounted rate, there by taking a percentage of what is owed to you.
This rate can vary according to the number and value of the company’s invoices being collected, and there can be additional fees or charges applied.
Invoice Discounting: Invoice Discounting will again provide your company with an 85% of the value of your invoices as a loan, however, unlike Invoice Factoring and having a third party collect your invoices for you, you are responsible to collect the invoices.
Invoice Discounting is more confidential, and keeps matters between you and your clients, no third parties are handling the collection of the invoices. Where as with Invoice Factoring, the invoices are sold and collected by a third party.
As with all invoice financing you can be approved and receive the funds to you quickly, in some instances within 24 hours, so it is a quick way to access cash.
The lender uses the invoices owed you as security against the loan, and when the remaining balance on the invoice(s) are paid, the lender takes their fee.
Selective Invoice Finance: This form of invoice lending is similar to Invoice Discounting in that you as a company must collect the remaining invoices, but you are only borrowing against select invoices, not all of your receipts or outstanding invoices, only the ones you choose to use for the loan.
Some companies may not be able to provide their entire book of business or invoices to a lender, so they select which ones to use to borrow against.
The amount that can be borrowed, will be based on the value of the invoices used.
There can be additional fees depending on the number of invoices you select to use, and your turnover.
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The benefits of Invoice Financing
Qualifying for a business loan can be based on many factors, such as the company’s credit if they are an established business. Other factors used to determine and approve a business for a loan may be:
- Length of time in business
- Cash flow
Again, business loans can be used for any business related expenses, to purchase sock or inventory, wages, office supplies, fixtures, furniture, etc.
The loan(s) become a part of the company’s operating expenses, and are paid back in accord with the terms outlined in the loan agreement.