How Can Invoice Financing Increase Your Business Cash Flow?

As a business owner, you should always remember – “Revenue is vanity, profit is sanity, but cash is king”.

Cash is indispensable because most of the operational activities depend on it. 

To be precise, the growth and liquidity of a company depends on how readily cash is available in a business. 

However, often due to several reasons like – improper working capital management, inadequate earnings, or a lengthy operating cycle, businesses fail to maintain the required cash flow.

While there are several channels available to entrepreneurs to access cash, small businesses often falter at securing a substantial loan from traditional financiers. But it should not restrict your cash flow stream in any way. With the availability of alternative funding options like invoice financing, you can boost your available cash flow as and when required.

Are you wondering how invoice finance comes in handy for businesses? Find out how you can benefit from the same.

Restricted Cash Flow And Resulting Problems

Have you ever noticed that the longer your operating cycle is, the more likely you are to face a cash crunch?

In general, businesses who receive late payments against invoices, often struggle to maintain a smooth flow of cash.

As a result, you may find it challenging to –

• Pay bills
• Purchase inventory
• Clear outstanding dues
• Hire staff
• Avail big orders
• Dealing with seasonal lows

But with the help of invoice finance, companies can solve these problems and more quite easily.  Ideally, there are 2 types of invoice financing, namely – invoice discounting and invoice factoring. You may choose the one that suits your requirements the best and benefit from it accordingly.

Role Of Invoice Financing In Boosting Cash Flow

The following pointers can help to understand how invoice financing aid in increasing cash flow in your business –

• Quick Access To Cash

Most invoice financing solution providers allow businesses to access funds within a short time. For instance, fintech companies like KredX provide quick access to cash typically within 24 hours to 72 hours*. It works by leveraging unpaid invoices for cash.

Such promptness comes handy in meeting urgent financial requirements. In case you have to pay a supplier on an urgent basis, you can rely on invoice finance to resolve such cash flow problems quickly. 

• Releases Tied-Up Capital

Usually, invoices accompany repayment terms of up to 90 days. Though such a repayment term makes things simple for buyers, sellers are unable to access funds for the given period.

Now, as a seller, if all your buyers take at least 2 to 3 months to pay for the purchased goods, you are bound to face a cash crisis sooner or later. It turns out to be a greater problem at times, when there are several orders to come but zero provision for advance payment. 

Moreover, you may miss out on some lucrative business opportunities due to lack of required capital. In such a situation, invoice financing can help you to release the capital that is tied up in those unpaid bills and inject cash flow into the operating streams. 

• Simple Terms Of Repayment

You do not have to repay invoice financiers until you receive payment from buyers. Since you do not have to pay the financier after a fixed term, it does not strain the available cash at hand. 

To make the most of this feature, look for fintech companies who extend a substantial amount of the invoice value, against easy to meet requirements and simple terms of services. This will help you access funds quickly and repay the same with ease.

But remember that the collection of payment varies from one invoice finance type to another. For instance, if you avail invoice factoring services, the buyer gets automatically involved in the financing method. It is because the financier collects the invoice amount directly from the buyer.

On the other hand, if you opt for invoice discounting, you do not have to involve the buyer into the financing agreement. With this financing option, you will be responsible for collecting payment from the buyer, and then pay the same to the financier. 

• Zero Debt Accumulation

Unlike business loans and other traditional funding options, invoice financing is not a credit facility. In fact, it is an extension of payment terms that helps cash flow, without influencing one’s existing debt. 

This feature works out brilliantly for those businesses who often do not qualify for a traditional business loan. Also, it works best for small businesses who do not want to increase their already existing debt burden. 

So, if you belong to either of these categories, you can avail invoice finance without any hesitation. 

Hence, invoice financing helps to increase the cash flow of a business in more than one way. But to maintain cash flow, you need to adopt effective cash flow management strategies and impose them judiciously.

Bottom Line

Invoice financing is an effective means to increase your business’s cash flow. However, make sure to select the right type of financing to make the most of this funding option. Other than that, develop efficient cash flow management strategies to ensure smooth cash flow at all times.