Over the last few years, financing options for small businesses like freight broker companies have significantly changed. Although the traditional funding options are still prevalent, there has been an emergence of other funding options that are flexible, reliable, and accommodating. Invoice funding is an emerging small business financing option that you should consider.
What is invoice funding?
Small business invoice factoring is a strategic method through which startups improve their cash flow. It involves selling invoices and getting cash immediately instead of waiting for the 30-day typical period for invoice to be processed. If you are struggling to sustain your operations due to cash deficits, here are some of the reasons why you should incorporate invoice funding in your company.
Immediate Access to Cash
The success of any business depends on how quickly it can get its investments back. However, in normal business operations, it is difficult to get funds immediately because typical clients take between 30 and 90 days to process invoices. Invoice factoring eliminates cash flow inconveniences by converting outstanding debts into immediate cash. Your small business will, therefore, have sufficient funds to meet its financial obligations when they fall due.
Invoice Factoring is not a Liability
A considerable number of business owners shy away from invoice advance loan because they have a perception that it is a liability. Obviously, very few business owners would want to increase their liabilities without due diligence. Nevertheless, freight invoice factoring is not a loan because your business is borrowing money that it has already earned. With this financing strategy, you are only increasing the speed at which your invoices are processed.
No Hidden Fees
Traditional business financing strategies such as small business loans and asset financing are known to harbor unseen, hidden fees. Financing organizations will disclose expected interest fees but will not act in good faith when it comes to changes in inflation and administration fees. Hidden expenses increase the amount that the company has to pay. However, factoring financing does not have hidden fees, which makes it a great go-to solution for small businesses in need of cash.
Low-Risk Borrowing Option
Invoice funding is a low-risk borrowing option as compared to traditional financing alternatives. For traditional business loans, company assets and sometimes individual properties are considered as collaterals. However, a freight broker factoring program levies the borrowed capital against your outstanding invoices. In circumstances where your business experiences difficulties, personal or business properties will not be used as collaterals. Your financier will never dip into your finances or assets.
Access to Financial Professionals
Invoice financing is a strategic method of accessing financial experts. Commercial factoring companies are run by trained and experienced financial advisors. These individuals will not only give you a head start on how to manage your funds, but they will collect debts on your behalf. They will take care of your invoices while at the same time chasing up late payments. It is beneficial to the company when you have to save on money and time used to chase unpaid invoices.
Flexible Use of Borrowed Funds
Borrowing money from mainstream banks and other business lenders has its disadvantages. One of the main demerits is that the bank will demand to know the use of money being borrowed. This restricts businesses from using funds for other purposes other than the one agreed.
However, organizations have the flexibility of using the funds acquired through business invoice factoring. They do not constitute loans, and the use or management of such funds does not bother freight factoring companies.
Accessing business loans is dependent on creditworthiness. A business that has poor credit rating will find it difficult to access funds from mainstream lenders. However, invoice financing is highly dependent on the creditworthiness of your customers. Therefore, you can easily restrict your credit sales to creditworthy customers and access funds with ease.
Funding small businesses is always a hard task that owners have to endure. Traditional financing options are available, but they have restrictive tendencies. If you are wondering how you will finance your small business operations, you can consider invoice funding as an alternative funding strategy. Invoice factoring does not constitute a business loan and has other benefits, as discussed above.