Why Small Businesses Opt for Invoice Financing Opportunities

Small businesses are greatly affected by their clients' payment speed. When clients are slow-paying, these businesses might struggle to cover their bills due to reduced working capital or miss out on growth opportunities. Invoice financing, also known as AR financing, could be the key to converting your unpaid invoices into immediate cash flow, letting you operate continuously without interruptions.

Invoice financing involves an AR financing company purchasing your invoice for a factoring fee. Let's take an example where you have a $5,000 invoice, the fee is 3%, and you're approved to receive 85% of the invoice upfront. You'd receive $4,122 on agreeing to this arrangement, and the remaining $728 after the factoring company collects from your customer. This transaction costs you $150 and provides you with upfront access to cash.

Here are the top reasons why small businesses should consider invoice financing to maintain or expand their operations:

Improve Payment Terms

Limited access to capital often leads small businesses to offer shorter payment terms, which might discourage potential clients who are accustomed to longer terms or lack the capital to pay the invoice earlier. Invoice financing enables you to offer more flexible terms while providing you with the necessary working capital to keep your business thriving.

Capitalize on Marketing Opportunities

Free marketing strategies, like social media promotion, can only go so far. Eventually, competitors with larger marketing budgets might outperform you. AR financing helps supply the capital needed to seize marketing opportunities that attract more business while awaiting current customers to settle their invoices.

Accelerate Business Expansion

Small businesses are constantly exploring ways to expand, which requires cash flow. As you wait for invoices to be paid, great opportunities might pass you by. Invoice factoring can quickly convert outstanding bills into cash, allowing you to seize growth opportunities immediately.

Handle Unexpected Expenses

Unexpected costs can quickly jeopardize a small business's operation if there's insufficient cash flow. Invoice financing helps manage this risk by providing immediate access to cash, allowing you to cover surprise expenses and keeping your business operational.

Expand Your Workforce

Hiring new staff is a positive sign of business growth, but it's also an expensive process. Invoice financing can help cover these costs while your invoices are being paid, allowing you to increase your workforce and continue to expand your business.

Boost Inventory Levels

During high-demand periods, you might need to increase your inventory. If your funds are tied up in unpaid invoices, it might be challenging to acquire more stock, potentially losing business to competitors. Invoice financing reduces this risk by providing you with the cash flow needed to increase inventory.

Purchase Equipment Without Relying on Equipment Loans

Acquiring equipment loans for small business can be costly and hard to qualify for, especially for small businesses. Invoice financing offers the cash needed to buy equipment outright, eliminating the need for financing. This means you don't have to worry about offering up a portion of your equipment as collateral or not qualifying due to a lack of an established business credit score.

Invoice financing is a lifeline for many small businesses. Whether you need the funds to meet regular operating expenses or have expansion plans, it provides quick access to cash that you'd typically have to wait 30 - 90 days to receive. Opting for this form of asset-based lending is a cost-effective way to gain access to cash that's rightfully yours, but could take a while to arrive. This delay could otherwise hinder your business's operations, your ability to cover expenses, expand, or purchase new inventory/equipment.