Invoice financing is a type of business funding where a company sells its outstanding invoices to a third-party financing company for a percentage of its value, typically around 80-90%. The financing company then collects the payments from the customers directly. This provides immediate cash flow to the company without waiting for the customers to pay.
The history of invoice financing dates back to ancient times when merchants would sell their invoices at a discount to raise funds quickly. In modern times, the practice became popular in the United States and the United Kingdom in the early 20th century as a way to help small businesses grow. Today, online invoice generator free financing has become a popular financing option for companies of all sizes, particularly those in the manufacturing and distribution industries. This article is a quick rundown of the main reasons why companies make use of invoice financing in the 21st century.
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It Does Not Incur New Debt
Invoice financing is not technically a loan and does not incur new debt. Companies are only clearing money using these services that they have already earned from customers. Invoice financing companies are responsible for getting the promised money from customers and clients. This puts many business leaders – who are rightfully wary of incurring new debts – at ease. This isn’t to say that all invoice financing companies are equal, though. You need to spend some time getting some free quotes for invoice financing services from professionals who know the industry inside out. If you have never tried invoice financing before, getting in touch with independent services designed to help you find the right company is recommended.
It Is Swift
If a company has outstanding invoices that are due to be paid to it, invoice financing can enable them to clear that money instantly without having to pester its clients. The speed at which money can be cleared using invoice financing is one of the main reasons why it is a popular service. Speed is of the essence in the modern business environment.
It Increases Inventory Turnover
Companies typically use invoice financing services to clear money that is locked in unpaid invoices so that they can invest in their inventories. Modern businesses rely upon extremely quick inventory turnover in order to offer their clients and customers speedy services. Invoice financing services enable businesses to invest in their inventories as soon as a sale is made. In the past, invoices had to be cleared by clients and customers before a company could reinvest the profits that it had generated. While most companies are not entirely reliant upon invoice financing for investments in inventory, they do typically use these services to clear part of the funds needed for good inventory expenditure.
It Allows Companies to Build On Commercial Success
Because invoice financing is a way of releasing funds that have been promised by clients and consumers, it follows that the more success a company is having, the more that company can make use of invoice financing. Invoice financing is often used by companies that are experiencing a period of commercial growth. Almost every business leader knows that periods of growth will lead to long-term success unless that growth is effectively capitalized upon. Invoice financing enables companies to turn their growth into investments – which should lead to more growth in the future.